This is the second time we are covering an Interim Budget. And the main highlight of this Interim Budget, like any other Interim Budget, is that there is not much to highlight on taxation changes (of course, the previous Interim Budget being an exception, where there were a few taxation changes). Though, that does not mean that it was a “nothing” budget as there were quite a few important announcements to keep doing what the honorable Finance Minister has been doing throughout her tenure - Structural changes, Fiscal consolidation and “Capex, capex and capex” literally. In short - continue on the current path for now and leave any new measures, direction etc for the next Finance Minister, post the May 2024 Central Elections. This has been called out in this specific statement that we quote from Budget Speech: 

“In the full budget in July, our Government will present a detailed roadmap for our pursuit of ‘Viksit Bharat’.”

Let us now get into the key highlights & proposals, followed by our take on it.

Key Highlights:

Green Initiatives & Tourism:

• Rooftop Solar Power generation scheme announced by the honorable PM on 22 January 2024 aims to cover 1 Crore households, with setups that can generate upto 300 units of electricity every month. This will effectively make the power consumption “free” to that extent for these households. Any surplus can be utilised for selling back to the power distribution companies or charging the electric vehicles.

• Few measures for wind power, coal gasification, blending of compressed biogas in CNG / PNG were also announced.

• Continued support is announced for promoting the EV ecosystem as well as promoting adoption of e-buses for public transport.

• A new scheme for bio-manufacturing / bio-foundry will be launched, to promote environment friendly products. This is a structural shift from the current consumptive manufacturing to regenerative manufacturing.

• Few measures are announced to improve domestic tourism, including spiritual tourism to create another multiplier effect. Tourism infra, rating mechanisms, financing in the industry will be promoted, with special focus on port connectivity, to focus on tourist destinations like Lakshadweep.

Housing & Healthcare:

• Government is working on a scheme to enable the middle class to own a house - be it buying or constructing one.

• Rural PM Awas Yojana is already close to achieving the target of 3 crore houses and the target has been increased by another 2 crore houses across next 5 years.

• Government will encourage Cervical Cancer Vaccination for girls in the age group of 9 to 14 years.

• Healthcare cover under Ayushman Bharat scheme will be extended to all ASHA workers, Anganwadi Workers and Helpers.

Agriculture & Fisheries:

• Existing initiatives in post-harvest activities including aggregation, modern storage, efficient supply chains, primary and secondary processing and marketing and branding will be encouraged by promoting more public and private investments.

• With the help of agri research and modern farming techniques, high yielding varieties of various key oilseeds will be promoted in order to achieve “Atmanirbharta” / self reliance in oilseeds. This is furthering the initiative launched in the 2022 Budget.

• There is a target to improve the productivity in aquaculture and double the seafood exports to INR 1 lakh crore. 5 Integrated aquaparks will be setup.

Digital Infra:

• This is one out of the few major highlights of this budget, sort of a first of its kind for India - A corpus of INR 1 lakh crore will be established with a  50 year loan. This corpus will provide long-term financing / refinancing with long tenors and low or nil interest rates. This is announced to provide a big push to innovation and research in the new age technologies / domains. To add more context from our side - if we look at this, combined with the various upskilling initiatives for youth, like Future Skills Prime, should give a major boost to a field, many of us may have been complaining about, but not any more - “we need more innovators!”

• A new scheme will be launched for strengthening deep-tech technologies for defence purposes and expediting “Atmanirbharta”.

Railways:

• In a major push in Railways, alongside the development of dedicated freight corridors, 3 major railway corridors have been announced:

1. Energy, mineral & cement corridors - for smooth movement of respective goods;

2. Port connectivity corridor to improve connectivity between major ports;

3. High traffic density corridors - to enhance capacity and improve travel time on busy routes. This is expected to improve speed as well as safety.

• 40,000 normal rail bogies will be upgraded to Vande Bharat bogie standards.

• Expansion of Metro rail and NaMo Bharat will be supported in large cities.

Economic Performance:

• Based on the experience in the last 5 years, where all of us have witnessed a massive multiplier effect in the economy as a result of increasing capital expenditure (Capex) by the Government, it has been taken a step further for the year 2024-25. The Capex is proposed to be increased by 11.1% to INR 11.11 lakh crore, making it 3.4% of the GDP (for context, this was 3.3% of GDP last year).

• Capital expenditure on Railways is 2.55 lakh crores and that on Defence is 6.2 lakh crores.

• Fiscal deficit for FY 2023-24 stands at 5.8% of GDP (against estimate of 5.9%). It is estimated to be 5.1% of GDP for FY 2024-25. Aiming to improve upon previous budget announcements, the goal is to bring the Fiscal deficit below 4.5% of GDP, by FY 2025-26.

• Government is aiming to keep the gross and net market borrowing for FY 2024-25 at levels less than FY 2023-24 which is again quite an aggressive stance.

Taxation Proposals:

As most of you might already be aware by now - there are no proposals for direct or indirect tax for FY 2024-25, being an interim budget. However, there is 1 noteworthy announcement here (amongst a few updates about reforms in past 5 years):

• Outstanding tax demands of upto INR 25,000, for a time period upto FY 2009-10 shall be withdrawn.

• Likewise, outstanding tax demands of upto INR 10,000, for a time period from FY 2010-11 upto FY 2014-15, shall be withdrawn.

• This is expected to eliminate various such small demands which are there on the books of the Department, but are small, disputed, possibly even non verified / non reconciled, but causing troubles to honest taxpayers. This is expected to benefit 1 Crore taxpayers, as per the records.

• Our quick take here - based on our experience with our clients, as well as amongst our peer group, quite a few such small demands have already been offset against refunds by now. But it seems as per the official data, quite a lot of such demands are still outstanding - those taxpayers will stand to benefit.

• Certain tax benefits to start-ups and investments made by sovereign wealth or pension funds as also tax exemption on certain income of some IFSC units expiring on 31 March 2024, have been extended upto 31 March 2025.

Also, if you would like to understand the New Tax Regime vs Old Tax Regime comparison, here is the link to our blog post on last year’s budget highlights.

Conclusion (Our view):

As we see above, there are quite a few structural initiatives that are expected to be continued, objectives furthered as also, new reforms being worked upon. Additionally, we think, we are witnessing those rare instances, where the Government is going quite aggressive on fiscal consolidation - beating their own estimates as well as setting bigger targets - which again most probably will be beaten by actuals. This will genuinely strengthen the economy.

These initiatives provide a lot of potential for various individuals and businesses to grow, as the economy grows and strengthens. For those into investing, one can get ideas about where the next big scope of growth lies.

However, we have not gone into much detail about those, in terms of detailed impacts and benefits of these announcements as, being primarily a tax consultancy, focused on individuals / small businesses mainly, our aim is to cover as many taxation aspects as possible - which are minimal this time. We hope that we struck the right balance between necessary information and necessary detail, to keep our clients and readers in general, informed about this Interim Budget for FY 2024-25.

Footnotes:

1. Link to Budget Speech, Finance bill.
   

2. Key Budget Highlights / Stats.

3. For any queries/feedback/suggestions, feel free to reach out to us at help@ayanshfinsights.com, or drop us a message/chat/call on our number: +91 93220 27741.
   If you wish to avail any of our services, you can view Our Offerings.
   

• Senior citizens above 75 years of age, earning only pension and interest income shall be exempt from filing the Income tax return.
  

• Tax uncertainty is being further reduced by limiting the time period for reopening of Income tax returns from 6 years, down to 3 years. Only for extreme cases where concealed incomes exceed INR 50 lakhs, the time limit stays upto 10 years, that too only with a consent from the Principal Chief Commissioner - the highest level of the Income Tax Department.

• People opting for LTA, but not able to claim the same owing to Covid now have an option to opt for claiming an alternative expense and receive the payout. This option was announced for Government employees in October 2020, and has now been extended to all salaried taxpayers. The claim can be made subject to a few conditions: the option should be exercised for the block of 2018-21 for FY 2020-21, on an expenditure on goods or services which attract a minimum GST of 12%. Also, this claim is capped at INR 36,000. To clarify, this was not covered in the budget speech, but is mentioned in the Finance Bill and the Budget Memo released post the speech.

• Dispute Resolution Committee will be setup for reducing litigation for small taxpayers with taxable income upto INR 50 lakhs and disputed income upto INR 10 lakhs.

• Following the faceless assessment announced last year, the next logical step is to go with a faceless Appellate Tribunal - Faceless ITAT, where even if hearings are required, it will be done through Video conferencing.

• To incentivise businesses to utilise digital modes of transaction, the tax audit limit for businesses conducting 95% of their business in digital mode, has been increased from INR 5 crore to INR 10 crore. For businesses not meeting the 95% threshold, the limit continues to be INR 1 crore.

• Additional deduction towards interest paid on loan availed for buying an affordable house has been extended upto 31 March 2022 (Section 80EEA) - of course, this applies only for assessees continuing under the existing tax regime.

• Scope of pre-filling of Income tax return has been expanded to prefill data with Income from capital gains on listed securities, interest from various deposits, apart from Salary data and savings account interest.

• Interest earned on Employee's contribution to EPF, to the extent that the interest is earned on contribution exceeding INR 2.5 lakhs in a Financial Year, shall be taxed.

• Basic customs duty on Gold and Silver is reduced from 12.5% to 10% (same as the level prior to July 2019 budget).

• Agriculture Infrastructure and Development Cess is levied on a limited number of items, at the same time ensuring that the end user of the items is not impacted. For example if the Additional Duty on an imported item was 12.5%, then the duty itself is reduced to 7.5%, and the new cess will be 5%. Please note, that this is just an indicative example and actuals maybe different.

• Voluntary vehicle scrapping policy introduced, to phase out old and unfit vehicles. This will help in encouraging fuel efficient, environment friendly vehicles, thereby reducing vehicular pollution and oil import bill. Vehicles would undergo fitness tests in automated fitness centres after 20 years in case of personal vehicles, and after 15 years in case of commercial vehicles.

• Production Linked Incentive scheme (PLI) which, as the name suggests, looks to incentivise domestic production of various goods, has been extended to 13 sectors. INR 1.97 lakhs have been allocated to this scheme for 5 years starting from the next year.

• A Development Financial Institution (DFI) will be setup via legislation - first part of the 3 pronged approach to push spending on the National Infrastructure Pipeline (NIP) announced in December 2019. This institution will have an initial capital of INR 20,000 crore with an aim to have a lending portfolio of INR 5 lakh crore in 3 years.

• Going through the fine print, and also further interactions by the honorable FM with the media, it appears that the intent is not just to have a single Govt DFI. Idea is that there will also be private participation, and there could be 2 or 3 DFIs with the aim of lending to Infrastructure development in India.

• Asset Monetisation - second part of the 3 pronged approach, where the Government is effectively looking to monetise non core assets held directly or via controlling and / or subsidiary companies. Examples that were quoted during the speech include: Airports held by AAI in Tier 2, 3 cities ; Oil & Gas pipelines of GAIL, IOCL, HPCL, certain NHAI operated Toll roads to name a few.

• While in this theme, we would like to cover 1 more aspect: A number of disinvestment transactions like BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam limited among others are targeted to be completed in FY 2021-22.

• Going by an old saying - 'Government has no business to be in business' - Government has proposed to take up the privatization of two Public Sector Banks (other than IDBI Bank, which was covered in an earlier budget) and one General Insurance company in the year 2021-22. LIC IPO is also expected to be completed in FY 2021-22.

• Government has approved a policy to eventually move towards a model of owning just a bare minimum CPSEs in around 4 core sectors, and rest all will be privatised - a big policy statement indeed!

• The third and the last aspect of the 3 pronged approach towards infra push is by increasing the outlay towards infrastructure in the central and state budgets. Key highlight here was that the budgeted number for capital expenditure for FY 2021-22 is INR 5.54 lakh crore (a rise of 34.5% from budgeted number for FY 2020-21 of INR 4.12 lakh crore).

• Considerable plans on Railways front - with Eastern and Western Dedicated Freight Corridor (DFC) to be commissioned by June 2022. 100% Electrification of Broad Gauge routes is expected to be achieved by December 2023.

• The aesthetically designed Vista Dome coaches capacity will be expanded on tourist routes. Work will also be done on an automated train protection system that eliminates train collision due to human error. 

• 2 new technologies i.e., ‘MetroLite’ and ‘MetroNeo’ will be deployed to provide metro rail systems at much lesser cost with the same experience as existing Metro, convenience and safety in Tier-2 cities and peripheral areas of Tier-1 cities.

• The power distribution companies across the country are monopolies, either government or private. There is a need to provide choice to consumers by promoting competition. A framework will be put in place to give consumers alternatives to choose from among more than one Distribution Company.

• It is proposed to consolidate the provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007 into a rationalized single Securities Markets Code.

• Further, steps will be taken to improve the secondary market for bonds, and also setup an exchange for Gold trading.

• There will be an increase in the permissible FDI limit from 49% to 74% in Insurance Companies and allow foreign ownership and control with certain safeguards.

• Stressed Asset Resolution by setting up a New Structure - An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realization. This is a sort of a 'Bad bank' to clean up the balance sheets of banks and pass on the bad assets to a dedicated entity which has a sole focus of recovery of bad assets.

• Further, Public Sector Banks will see an additional infusion of INR 20,000 crore.

• Amendments will be moved to certain laws to ensure smooth access to the funds upto the guaranteed amount of INR 5 lakhs under DICGC in case of banks undergoing stress.

• Corporate Laws - Small companies definition is being relaxed to reduce the compliance burden for companies with paid up capital upto 2 crore (50 lakh earlier) and with turnover upto 20 crore (2 crore earlier). One person companies (OPC) will be allowed to grow without restrictions with an option to convert freely into any other entity in future.

• During the upcoming year 2021-22, Ministry of Corporate Affairs will be launching data analytics, artificial intelligence, machine learning driven MCA21 Version 3.0. This Version 3.0 will have additional modules for e-scrutiny, e-Adjudication, e-Consultation and Compliance Management.

• MSP for farm procurement has steadily increased to ensure that farmers get atleast 1.5x the cost of their produce, with procurement itself increasing gradually over the years.

• Around 1.68 crores farmers are registered and INR 1.14 lakh crores of trade value has been carried out through e-NAMs. Keeping in view the transparency and competitiveness that e-NAM has brought into the agricultural market, 1,000 more mandis will be integrated with e-NAM.

• To provide further boost to the Digital Payments by providing financial incentives a further allocation of INR 1,500 crore has been allocated.

• INR 3,768 crore has been allocated for the first Digital Census of India.

Economic performance:

Fiscal deficit for FY 2020-21 has been revised upwards to 9.5% of GDP, as against a target of 3% for March 2021 as per the FRBM Act. This deviation is covered by the exception clauses inbuilt in the legislation, considering the pandemic situation observed for a whole year.

The path of fiscal consolidation is expected to now resume and achieve a target of Fiscal deficit of 4.5% of GDP by FY 2025-26.

Conclusion:

Effectively, it appears that the large Capex required for continuing and expanding on the path towards becoming a $5 Trillion economy, will be majorly funded via strategic asset sale, thus ensuring that even after a pandemic situation, the longer term plans are not impacted, that too, without having to increase the tax burden on the taxpayers. For the uninitiated, we would like to point it out - that there was a buzz that there could be some form of higher taxation, like a 'Covid cess' or some tinkering with the Capital Gains taxation and so on, but as clearly called out by the honorable Finance Minister during her various interactions - they have specifically avoided such steps and rather looked to fund the qualitative expenditure out of strategic funds / of capital nature. On a side note, the Equity markets have already cheered this budget as well - may not be right to always link the two, but it does give us a drift on things to come.

Readers of this article might have already read few other viewpoints from various sections of the society, with most giving this budget a thumbs up, and we tend to echo that - on the face of it, it may appear to be a boring budget, with very less perceivable impact initially, but as we see the execution of these announcements, the impacts will be seen thick and fast. And those are expected to have a multiplier effect - such that it may not need negligible Government spending in upcoming years, and yet the positive impacts will continue to be felt on ground.

Lastly, there are many more aspects to the Budget speech and the detailed announcements, but as we usually do - we usually focus on only the key announcements and like to keep it short, while giving the links to the source. You may refer to the footnotes for those links.

For any queries/feedback/suggestions, feel free to reach out to us at help@ayanshfinsights.com, or drop us a message/chat/call on our number: +91 93220 27741.

If you wish to avail any of our services, you can view Our Offerings.

Footnotes:

1. Links to Budget Speech, Budget Memo, Finance Bill.