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What to expect from Budget 2023: Fiscal prudence or income tax reforms?

Dec 9, 2022

Deloitte India feels the FM might make some changes in the income tax slabs. Read on to know what they propose the revised income tax rate should be

As we step into the new year 2023, the market investors will start looking at cues from the Union Budget 2023-24. This will be the last full year Budget from Modi government ahead of the Lok Sabha elections in April-May 2023.

Experts and analysts in the equity market have already started to build their positions as per the expectations from the Budget, which is likely to be presented on February 1, 2023. Some expect the government to keep its focus on infrastructure development while maintaining the path of fiscal prudence. On the other hand, there are expectations of fresh reforms and tax benefits.

The key expectation from the finance minister is to maintain the growth path while keeping fiscal deficit and inflation in check.

"We are of the opinion that government will reflect fiscal prudence and not resort to any big ticket radical announcements or reforms. It would continue the existing strategy of Infrastructure development, broad-based Capex and manufacturing-led growth as a sustainable way ahead for India," HDFC Securities said in its latest report.

The brokerage expects the government will manage to keep the full-year fiscal deficit within estimated target of 6.4% of GDP. And investment-led growth will continue to be government’s mantra in place of direct fiscal support to key consumption sectors.

Gross tax collections in this fiscal have been robust so far at ₹16.1 lakh crore (+18% YoY & 58.4% of FY23 budget estimates till October 2022, according to HDFC Securities estimates.

Meanwhile, Delloite India has suggested some changes in the income tax structure - it feels the highest tax rate of 30 percent should be reduced to 25% and the threshold limit for the highest tax rate should be increased from ₹10 lakh to ₹20 lakh to improve the purchasing power of individuals.

For investments uder Section 80C - "The current limit of ₹1,50,000 seems quite low. With the increase in cost of living and inflation, the government should look at increasing the limit. This will have two-fold benefits, viz., individual taxpayers would be willing to save more and will benefit from a lower tax outgo, thereby increasing disposable income to meet the increase in price of various commodities," Tapati Ghose, Partner, Delloite India said in a report.

The Budget 2023 comes at a time when the world is grappling with geopolitical uncertainties, concerns around slowing growth, inflation sticking to high levels despite the measures taken by the central banks and governments.

Considering the global economic uncertainties and a possible slowdown, Delloite India has given its GDP growth estimates in the range of 6.5-7.1% during FY2022–23 and 5.5–6.1% for 2023-24.

So while formulating policies, the finance minister Nirmala Sithraman will have to keep this economic setup in mind, in addition to the political compulsions.

The finance minister started her pre-budget consultation meetings last month. Industry experts and analysts poured in their suggestions to the FM. PHD Chamber of Commerce and Industry has suggested the government to make maximum GST on hotel rooms at 12%, Mint had reported earlier.


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