The highlight of Union Budget 2023 is undoubtedly the revision in the framework of the new income tax regime for which the rebate has been raised to Rs 7 lakh per annum from Rs 5 lakh under section 87-A, for those opting for the new tax regime. The tax exemption limit has been raised from Rs 2.5 lakh to Rs 3 lakh per annum in the new regime. This will provide major relief to all taxpayers in the new regime, which will now be the default regime, as it is far more attractive, though citizens will continue to have the option to stick to the old tax regime, should they wish to.
The benefit of standard deduction has been extended to the salaried class and pensioners including family pensioners under the new tax regime. Salaried individuals will get a standard deduction of Rs 50,000 and pensioners Rs 15,000 as per the proposal. Each salaried person with an income of Rs 15.5 lakh or more will thus gain Rs 52,500 from the above proposals. The highest surcharge rate in personal income tax has also been reduced from 37 percent to 25 percent in the new tax regime for income above Rs 2 crore. This would result in the maximum tax rate of personal income tax coming down to 39 percent from 42.74 percent at present.
The Modi government has sent out a strong message that it stands for the poorest of the poor and does not believe in crony capitalism, but equally, it stands for wealth creation too and being rich is certainly not a crime. The limit of tax exemption on leave encashment on the retirement of non-government salaried employees has been increased from just Rs 3 lakh to a massive Rs 25 lakh. The best thing about this Budget is that it is low on incrementalism and high on sweeping changes that can have a virtuous, multiplier effect. Revenue of about Rs 38,000 crore will be forgone as a result of these proposals, while revenue of about Rs 3,000 crore will be additionally mobilised. Thus, the total revenue forgone on account of these proposals is about Rs 35,000 crore annually. So, while the benefits via the new tax regime to the middle class will be huge, the impact on the government exchequer will be minimal, which is what great budgeting is eventually all about.
Rewards Savings
The Modi government has doubled the deposit limit of the Post Office Monthly Income Scheme (POMIS) in Budget 2023 to Rs 9 lakh, up from the current Rs 4.5 lakh, for individual account holders. The new limit for the joint account holders will be Rs 15 lakh, up from the current Rs 9 lakh. Senior Citizen Saving Scheme (SCSS) limit too has been hiked from Rs 15 lakh to Rs 30 lakh, which is a huge bonanza for senior citizens. The new one-time, small savings scheme, 'Mahila Samman Bachat Patra' with a 7.5 percent assured return for two years, will further encourage a savings culture among women.
Budget 2023, the last full budget before general elections in 2024, has to be one of the best presented in the last many decades. It laid significant emphasis on green growth, capex, rural support, inclusivity, tourism, the welfare of tribals and farmers, skilling of youth and empowerment of artisans. It has provided for an infusion of Rs 9,000 crore into the credit guarantee corpus for MSMEs and a 33 percent hike in Pradhan Mantri Awas Yojna allocation to Rs 79,000 crore. Other proposals include reversal of inverted duty structure and plans to set up 10 bio-input resource centres and 157 nursing colleges in co-location with the existing 157 medical colleges. Above all, the budget puts more money in the hands of India's growing middle-class. The Modi government steered clear of populism and considering it is a pre-election year, that reflects very highly on the credibility of PM Modi and his long-term vision.
Gross tax revenues are estimated to rise by 10.4 percent in 2023-24 following the 12.3 percent increase in the current year. That implies an assumed tax buoyancy of just 1x against the estimated buoyancy of 0.8x in the current year. Also, lower inflation will result in the nominal GDP growing at a much slower 10.5 percent next year, compared to the 15.4 percent number in 2022-23 and 19.5 percent in 2021-22.
However, if tax buoyancy is even marginally greater than the assumed 1x, nominal GDP will grow much higher than the assumed 10.5 percent, other things remaining the same and chances of that happening are pretty high. Given the modest disinvestment target of Rs 51,000, it would be achieved. Dividends from the Reserve Bank of India (RBI) and banks are estimated at just around Rs 48,000 crore for 2023-24. So the fiscal math has been pretty conservative, and rightfully so. The Union Budget, endorsing the broader theme of Modinomics, stuck to fiscal discipline, with revenue assumptions being realistic and not unduly optimistic, thereby leaving room for significant positive surprises as the year moves forward.
Sanju Verma is an economist, national spokesperson of the BJP and the author of ‘The Modi Gambit’. Views are personal and do not represent the stand of this publication.
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