Why Budget is Necessary?

Although the budget is declared or unveiled to the public on 1st February every year in the parliament, it comes into effect from 1st April only. Just as a company must prepare its income, expenses and growth reports yearly, similarly it is vital for a nation to do so. The budget is evaluated or built based on taking into consideration of 3 major points: the amount the nation is going to earn, the amount the nation is going to spend and what will be the focus of the nation in the coming year. This year the prime focus of the budget was on Fiscal Consolidation, the tremendous increase in capital expenditure and changes and rebates in the new Income Tax Regime.

How is the Budget Prepared?

The budget was officially announced on 1st Feb 2023 but the work on it officially started 6 months back i.e. in August 2022 itself. All the ministries of government are requested to present estimated expenditure reports, and the projects they will work on. Several sections and stakeholders of the society such as businesses, trade bodies, farmer unions, etc are consulted while preparing the budget. Finally, after a discussion and review by Prime Minister and Finance Minister, the final budget is prepared. After the entire budget is framed a special “Halwa” is cooked and distributed among all involved authorities and people. The budget is quite a confidential document and if leaked, people will know where the government is going to spend money this year, and thus accordingly people will get an idea about which sector is going to experience a boom. Thus, they will also invest money accordingly in those sectors only and this might disrupt the economy. To avoid such a scenario, people making the budget are locked in a room and allowed to go out only once the budget is presented in the parliament. Different ministries are allocated different shares in the budget as per stated by them or requested by them. This year maximum allocation has been done to the Ministry of Finance, then to the Ministry of Defence, then to the Ministry of Consumer Affairs, Food and Public Distribution followed by the Ministry of Chemical and Fertilisers, then to the Ministry of Home Affairs, then to the Ministry of Rod Transport and Highways, and then finally to the Ministry of Railways.

Key Focus

Last year, India celebrated its 75th independence day, and “Azadi ka Amrit Mahotsav”. As Nirmala Sitaram, disclosed the budget this year, she stated that we are entering into the “Amrit Kaal” or the Golden Era. Vedic times have their very own definition of the term ’Amrit Kaal’. As per our government, the period from the year 2023 to 2047 will be referred to as “Amrit Kaal” i.e. till the year when India will complete 100 years of its Independence. Nirmala Sitharaman, our current finance minister, listed 7 priorities of our union Budget listed as:

1. Focus on Inclusive Development: By the term Inclusive Growth, the government emphasises growth, in which all the sections of the society are taken together and benefited. These include our Youth, Women, Farmers, SC/STs, OBCs, EWS and other underprivileged sections. Contrary to this, this year, there has been no significant change in Women’s Ministry Budget. This year 25,448 crores have been allocated as compared to 25,172 crores last year. At a time when India’s malnutrition problem is increasing (India’s ranking in the Global Hunger Index 2022, is 107 out of 121 countries), the government’s nutrition program for children and pregnant women, Saksham Anganwadi and Poshan Abhiyan 2.0, have experienced no significant hike in budget allocation. This year, the government has allocated 20,554 crore rupees to it as compared to 20,263 crore last year. In the budget allocated to Social Security and Welfare under the Women and Child Development Ministry, there has been a cut in the budget allocated to it this year. 1429 crores have been allocated for it as compared to 3437 crores rupees allocated in the previous year. Apart from this, the government also discussed the success of its Aspiration District Model for backward and suppressed districts and Eklavya Schools opened for tribal welfare. The government also aims to eliminate sickle cell anaemia disease by 2047.

2. Focus on Digital Infrastructure to aid the Agriculture Sector

3. Focus on Financial Sector

4. Focus on Green Growth

5. Focus on Infrastructure and Investment

6. Focus on Unleashing Potential

7. Focus on Youth Power

Key Insights of the Budget

1. Capital Spending :
It refers to the expenses made by the government into purchasing or establish long- term assets in the economy. This includes building roads, development of railways, building ports, buildings bridges etc. This year, there has been a tremendous increase in budget allocation to capital spending. As compared to the past year, there has been a spike/hike of about 33-35% this year. It would be around a total whopping amount of 10 lacs crores which is about 3.3% of our GDP. Finance Minister, Nirmala Sitharaman, said the main motive or purpose behind this is to create more employment opportunities and generate more jobs. 

2. Reduction in Fiscal Deficit:
Fiscal Deficit is the difference between total revenue and total expenditure i.e. the difference between the amount government is earning and the government is spending. Clearly, from the term 'deficit' one can infer that, the amount the government is spending isn’t in accordance or up to mark as compared to what the government is earning. For the FY(Fiscal Year) 2022-2023, the fiscal deficit was around 16.61 lakh crore rupees which is about 6.4% of the total GDP. This year's government aims to reduce it to just 5.9% of the GDP. By 2025-26, the government aims to reduce it to around just 4.5%. The simplest way to do so is by reducing expenditure and increasing income. Ways to increase income include: increasing taxes and ways to cut down on expenditure include: reducing investment or the amount burnt on government schemes. A similar thing has been done in this year's budget. Subsidies on Food, Fertilizer and Petroleum have seen a cut of about 28%. In the fiscal year 2022-2023, the government spent 5.2 lakh crore and in this fiscal year i.e. 2023-2024 government aims to reduce it or peg it down to just 3.67 lakh crore rupees. After cutting down on food subsidies, the government has saved around 90,000 crore rupees. Introduced during the COVID-19 pandemic, the PM-GKAY (Garib Kalyan Anna Yojana), which gave 5KG of free rice/wheat, per person per week, to 81 crore people was halted from 1st January, 2023. Now under this scheme, different task is being done, i.e. the scheme is not completely being discontinued. Earlier under, NFSA (National Food Security Act), the supply of rice and wheat was provided to people at Rs. 3 per KG and Rs. 2 per KG, but now this will be done free of cost. Apart from that government has cut its budget on the MNREGA scheme (Mahatma Gandhi National Rural Employment Guarantee Act), one of the most important government schemes for rural employment. Its budget has been reduced to 60,000 crores as compared to the previous year when the government spent 89400 rupees on this scheme. This is the all-time lowest in the last five years as well as composed of the smallest percentage in the GDP distribution, i.e. just about 1.3%.

Budget Allocation to Different Sectors

1. Agriculture Budget
This year the net allocation has seen a drop, but the expenditure done by the government in the previous FY was also not up to date as compared to what is allocated.  

2. Defence
Defence Budget has experienced a hike of about 13%. It has increased to 5.94 lakh crore rupees as compared to the previous year’s 5.85 lakh crore rupees. 

3. Education and Healthcare 
Looking at the amount of allocation, there has been an increase in this sector, but looking at the percentage share in GDP there has been a drop. This year 1.13 lakh crore rupees will be spent on this as compared to 99000 crore rupees spent on the previous year. Looking at GDP percentage share, last year it comprised 2.64% of the budget as compared to 2.51% this year. Similarly, for health, last year's budget allocation percentage was 2.2% as compared to 1.98% this year.

4. Environment
Talking about the environment, the government aims to build India a net zero- emission nation by the end of the year 2070. For this, Nirmala Sitharaman has also announced the national Green Hydrogen Mission for which 19,700 crore rupees have been allocated whose prime target is that there should be production of 5 million tonnes of hydrogen for this project by 2030. A total sum of about 35000 crore rupees will be spent by the government on this Net-Zero Objective. A scheme by the name of PM-PRANAM (PM Program for Restoration, Awareness, Nourishment and Amelioration of Mother Earth) has also been launched, to promote alternative fertilisers to reduce the usage of chemical fertilisers. Another initiative by the name of MISHTI has also been introduced which stands for Mangrove Initiative for Shoreline Habitats and Tangible Incomes to boost the mangrove plantation along India’s coastline which is crucial for Tsunami prevention and preventing beach erosion and reduce the impact of climate change. The next initiative in the list includes building Bhartiya Prakritik Kheti Bio-Input Resource Centres. About 10,000 Bio-Input Resource Centres will be set up where the government will promote the distribution of micro fertilizers and the adoption of natural farming practices.

5. Railways
It has seen a massive increase in the budget allocation this year. About 1 lakh crore rupees more will be spent on this as compared to the previous year. Last year about 1.4 lakh crore rupees was allocated to this as compared to this year’s 2.4 lakh crore rupees. Railway Minister Ashwini Vaishnav has claimed that as compared to the previous year's construction rate of 12km/day, this year's railway lines will be laid at a rate of 16km/day. Apart from that, 3 more factories will be set up where construction of the "Vande Bharat Train" will take place. Apart from that, the railway will also introduce trains, running on hydrogen by the end of this year. 

6. Road Transport
There has been a significant increase in Budget Allocation to this sector. Expenditure on road transport has experienced a hike of 24%. This means that about 2.7 lakh crore rupees will be spent on this as compared to 2.1 lakh rupees last year.

Commodities whose Prices have Increased

1. Cigarettes on which an additional tax of 16% will be levied from now on. 
2. Import Duty on compounded rubber has increased by 25% from the previous 10%. 
3. The custom duty levied on electric chimneys installed in the kitchen has been doubled i.e. 15% from the previous 7.5%.
4. Basic customs duty on things made of gold bars has increased as well.

Commodities whose Prices have Decreased

1. The customs duty on parts of open cells installed in TVs has decreased by 2.5%.
2. Custom duties on material imported to manufacture smartphones have also been cut down.
3. Seeds are used to grow lab gown diamonds. Custom duty on these seeds has reduced as well. 
4. Now custom duty exemption is valid on batteries of Electric vehicles as well.
5. Apart from that, the government has reduced customs duty on shrimp feed as well to promote exports.

Understanding the Tax regime

There have been changes in the new tax regime only and the old tax regime remains to be the same. On 1st April, 2020 a new tax regime was introduced by the government under section 115BAC of the Income Tax Act, 1961, whose main aim was to simplify the tax system and bring lower tax rates. Till now, taxpayers had the option to choose to follow the new tax regime or continue with the old one. Now also, users have the option to choose between them, but the New Tax Regime will be set by default for the new tax filers which is non- changeable, thus utmost care must be taken before selecting the tax regime. The main motive of the government behind this is to encourage people to opt into the new Tax Regime. The government has done 2 major things, to make this regime more lucrative for common people:

1. Increase in Rebate Limit
The rebate limit under section 87A has been increased from 5,00,000 to 7,00,0000 i.e. a person has to pay no taxes if his/her total income from all the sources in an FY is less than 7,00,000. But, if the income cross even by 1 rupee, the person has to pay taxes on the entire income as per the tax rates. For Ex: If your income becomes 7,01,000, then a person will have to pay taxes as follows,

5% of 3L = 15000 (as 3 lakh rupees has been considered in the 3 lakhs to 6 lakhs range)
And 10% of 1.01L = 10100 (as 1.01 lakh rupees has been considered in the 6 lakhs to 9 lakhs range)
i.e. total 26100 rupees.

2. Standard Deduction Benefit
People will be given a standard deduction benefit of up to 50,000 rupees in the new tax regime. Earlier, the new tax regime had no deduction benefit. Earlier, if a person was into investments and was getting perks under section 80C the old tax regime was more beneficial. Now, in the new tax regime, people are given a benefit of 50,000 rupees which is still very lower as compared to the old one (for the old one it is 5 lakh rupees). Thus, if one is thinking of investing more money, which can increase your income, for that individual the old tax regime will be more beneficial.

New Tax Regime vs Old Tax Regime

If you are a salaried employee, and your income is solely based on base pay that is no other perks such as HRA (Housing Rent Allowances), CEA (Children Education Allowance), Conveyance Allowance, Uniform Allowance, Helper/Assistant Allowance, Books or Periodicals, ESOP, Food Coupons, Services of Domestic Worker, LTA (Leave Travel Allowances), Motor Car/Other Conveyance, is provided then, in that case, the old tax regime is better as they have separate sections to provide exempt to pay taxes on these perks up to a retail limit unlike the new tax regime where no such new provision has been made for these and a person is liable to pay the tax on the entire amount. Similarly, if a person is more into investments, the old tax regime is best due to exempts provided into it, But, if a person is not that much into investments or if his/her salary is less than 7 lakhs and he/she doesn’t get any extra perks, the new tax regime is the best fit for them.

Tax Rate in the Old Tax Regime

The tax rate for various income tax slabs in the old tax regime is as follows: Up to 2.5 lakh rupees (No Tax), above 2.5 lakh rupees and less than 5 lakh rupees (5% of total income), above 5 lakh rupees and below 10 lakh rupees (20% of total income), and finally above 150lakh rupees one has to pay 30% of the total income as tax.

Tax Rate in the New Tax Regime

The tax rate for various income tax slabs in the new tax regime is as follows: Up to 3 lakh rupees (No Tax), above 3 lakh rupees and less than 6 lakh rupees (5% of total income), above 6 lakh rupees and below 9 lakh rupees (10% of total income), above 9 lakh rupees and below 12 lakh rupees (15% of total income), above 12 lakh rupees and below 15 lakh rupees (20% of total income) and finally above 15 lakh rupees one has to pay 30% of the total income as tax.

Benefits for different Sections of the Society

1. For Startups and Small Businesses
i. Agriculture Accelerator Fund: Many startup sectors such as FinTech, EdTech etc have already experienced a boom in the past few years but Agritech was lagging in this. This fund will fill this gap.
ii. Ease of doing Business: From FY 2023, about 39000 complaints related to doing business as per policies in different states, cities, and districts has been reduced. 3400 legal provisions, which had criminal implications earlier have now been decriminalized.
iii. Jan Vishwas Bill: Earlier, an Inspector used to visit and inspect all the factories about everything related to factory maintenance and product quality. Thus, earlier there were a lot of compliances. Now, these complaints were slowly reduced and in 85-90% of cases the government used to believe the reports related to various parameters be it based on quality or income etc uploaded on their portal. Now, the government aims to increase this to 99-100%, for which the government has decided to amend more 42 laws to comply burden of individuals and businesses to ensure ease of doing business.
iv. National Governance Data Policy: The government has launched this policy to promote startups in India. With the help of this, startups will be given access to datasets of the entire country while maintaining anonymity, and by harnessing the potential of AI, startups can take help from this data and contribute to improving the Indian economy and boosting economic development. 
v. Other benefits include provisions such as Common Business Identifier, Unified Filing Process, Entity Digilocker, NAPS (National Apprenticeship Promotion Scheme) and Presumptive Taxation. Apart from that government also heeded special attention to providing tax benefits to new startups and promoted timely payments to MSMEs.  

2. For Salaried Employees
i. Leave Encashment: Under this provision when a person retires, he/she can convert all his/her remaining leaves into cash. If a person has 100 leaves left, then he/she will get paid as per their current salary for it. For non- government employees, the maximum limit up to which no tax was levied was 3 Lakh rupees, which has now been increased to 25 lakhs. But, a cap has been placed, that a person can in cash only up to 10 times his/her monthly salary or up to 25 lakhs, whichever is lower. ii. If a salaried employee is a PF member, and if the person didn’t have a PAN card, then he/she was liable to pay 30% tax if he/she had more than 50,000 rupees in the fund. Slight relief has been given in this, and now employees will have to pay only 20%.

3. For Students
i. If a person is into online gaming, earlier if someone was earning up to 10,000 rupees from gaming, no TDS was deducted from it. Only for the amount earned about 10,000 TDS was deducted. So, what companies were doing was, that if you earned 8000 in a game and 6000 in a game, although you earned a total of 14,000 but still no TDS was deducted as individually both the amounts were less than 10,000. Now, the government has changed the rules and now even if a person earns 1 rupee, then also, the amount will be credited after a 30% TDS deduction. On online quizzing and other platforms, still it would be calculated yearly, i.e. if the amount exceeds 10,000 yearly, then only TDS will be levied from the entire amount.

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