Budget 2023: 10 key areas you should watch out for

Will clarity and relaxation on ESOP taxation rules find a place in the finance minister's Budget 'bahikhatha'?

All eyes will be on Finance Minister Nirmala Sitharaman as she prepares to present the last full Union Budget of the Narendra Modi-led National Democratic Alliance (NDA) government’s current term.

There will be heightened expectations from the markets as well as people about plucky policies with focus on raising people’s income levels, enabling greater investment in infrastructure to generate jobs, boost farm incomes to keep the rural economy buzzing, and roll out conducive policies to attract more foreign and domestic investment.

Here are the 10 key areas to watch out for in Budget 2023.

Capital Gains Tax

Capital gains tax is levied on the gains made through the sale of movable and immovable capital assets. Depending upon the period of holding an asset, the long-term or short-term capital gains tax is levied.

Different asset classes such real estate, equity investments, debt instruments, and mutual funds, among others, attract different rates of capital gains tax. Besides, the capital gains tax could differ within the same asset class too depending on the holding period and maturity.

Individual income tax

Individuals and the salaried class will also watch out keenly on what the budget announces on the individual income tax slabs. This could well be an opportunity to present a neater, simpler individual income tax slab and rate construct replacing a two-system structure that has been in place since 2020.

Capital Expenditure

Finance minister Nirmala Sitharaman could unveil big spending plans for crowding in private investment. The government is expected to continue with its plan to ramp up capital expenditure in the upcoming Budget 2023-24 with special focus on states’ spending on capital assets. This is in line with the previous Budget that saw a bumper hike in Centre’s capex plans. Road and other infrastructure projects can spur economic activity, boost construction and create jobs. The segment accounts for about 8 percent of GDP and is the largest creator of direct and indirect employment, employing about 40 million people.

Fiscal Deficit

This is one figure that markets and policy makers will keenly watch. Finance minister Nirmala Sitharaman is expected to continue with the fiscal consolidation, demonstrating the government’s intent to walk the talk on fiscal rectitude. As the pandemic lingered into 2022 and with increased welfare-related spending, the fiscal deficit for 2021-22 stayed elevated at 6.9 percent of GDP. The government expects the deficit to ease to 6.4 percent of GDP and wants to continue with fiscal consolidation to attain a level of fiscal deficit lower than 4.5 percent of the GDP by 2025-26.

Food Subsidy Bill

The food subsidy bill will be another figure that will be keenly followed. In December, the government decided to extend the free foodgrain scheme under the Pradhan Mantri Gareeb Kalyan Ann Yojana (PMGKAY) as Covid relief by bringing it under the National Food Security Act (NFSA) for 2023. From 2015-16 to 2019-20, the Centre's annual food subsidy averaged Rs 1.1 lakh crore. As such, while next year's bill will still be roughly double that figure, the government will not have to spend on PMGKAY, which costs nearly Rs 14,000 crore per month.

Fertiliser Subsidy

The other big expense is likely to be on fertiliser subsidies. The government has already estimated an additional fertiliser subsidy of Rs 58,430 crore , pushing the 2021-22 budget from Rs 79,500 crore to Rs 1.38 lakh crore. Expecting a further increase in the net sowing area and high input and fertliser costs globally, the government will likely estimate a higher fertiliser subsidy this year.

Nominal GDP growth

How shall the economy grow in 2023-24? The budget will hold cues to this. According to the data released by the statistics ministry on January 6, India’s nominal GDP growth for FY23 is estimated at 15.4 percent versus 19.5 percent in FY22. India's real or inflation-adjusted GDP is estimated to grow by 7 percent in 2022-23. In the fiscal year The World Bank last month revised upwards its GDP growth forecast for India to 6.9 percent for 2022-23, saying the economy was showing higher resilience to global shocks.

Section 80 (C)

The government could raise tax breaks offered on money parked in a pool of savings instruments including bank fixed deposits, insurance premium and mutual funds from Rs 150,000 to Rs 200,000 a year under the popular “Section 80C” scheme. The move, if implemented,  could encourage people to move their extra funds into the banking and the financial system, instead of stocking up cash.The deduction limit under Section 80C has been at the current Rs 1.5 lakh since 2014-15. The NDA government in its first budget presented in July 2014-15 had raised the annual investment limit under Section 80 (C) by Rs 50,000 to Rs 1.5 lakh.

Asset Monetisation

Budgetary allocation to infrastructure ministries could be linked to the progress and performance that these ministries achieve in the government’s ambitious national asset monetisation pipeline. (NMP). The government could miss the NMP target for this year. In this fiscal, transactions of Rs 33,100 crore have been completed under the NMP so far. In the last fiscal year, transactions worth Rs 96,000 crore under the NMP were completed, exceeding the target of Rs 88,000 crore. In August 2021, finance minister Nirmala Sitharaman announced that the government will monetise assets worth Rs 6,00,000 crore between 2021-22 and 2024-25 under the National Monetisation Pipeline (NMP) scheme. The government will still own the assets being given out under the National Monetisation Pipeline (NMP), and will be returned to the government after a period of time.

Millets

The Union Budget could announce a special fund or a scheme for millets as India prepares to steer the celebration of International Millet Year 2023 and promote the cultivation and consumption of nutri-cereals. Millets are considered 'Smart Food' as they are easy to cultivate, mostly organic and contain high nutritional value. Spearheaded by Prime Minister Narendra Modi, the government of India sponsored the proposal for International Year of Millets (IYM) 2023 which was accepted by the United Nations General Assembly (UNGA). The declaration has been instrumental for the government of India to be at the forefront in celebrating the IYM. Modi has urged to make IYM 2023 a 'People's Movement' alongside positioning India as the 'Global Hub for Millets'.