Union Budget 2024: Key highlights, Benefits, Shortcomings

Union Budget 2024: Key highlights, Benefits, Shortcomings

KAKALI DAS

On Tuesday, Finance Minister Nirmala Sitharaman presented the Union Budget for 2024-25 during the Monsoon Session of Parliament.

Here are the key highlights:

1. Income Tax – The Income Tax Act will be reviewed within six months to reduce disputes and litigation. The major announcement is the introduction of new tax slabs, resulting in an annual saving of approximately ₹17,500, or a little over ₹1,000 per month. Additionally, the standard deduction for salaried employees has increased from ₹50,000 to ₹75,000, and the deduction for family pensions for pensioners has risen from ₹15,000 to ₹25,000, providing some extra savings.

• Angel Tax Abolished – The second major announcement, particularly celebrated in the startup sector, is the abolition of the Angel Tax for all classes of investors. This tax, which had been a contentious issue, was imposed on funding raised by startups when the valuation exceeded the company’s fair market value, requiring them to pay income tax.It was widely considered unfair in the startup world and has now been completely removed.
• Capital Gains Tax – The tax on equity investments has been revised. Short-term capital gains tax on equity investments held for less than one year has increased from 15% to 20%. Long-term capital gains tax has been raised from 10% to 12.5%.

Additionally, the securities transaction tax on futures and options has been increased, disappointing the stock market. However, a closer look at the fine print reveals a change in tax benefits for real estate. While the long-term capital gains tax is lower, the benefit of indexation has been removed to simplify the process.

For instance, if you or your parents bought a home and held it for a long time before selling it at a large profit, you would need to pay Long-Term Capital Gains Tax. Previously, you could benefit from indexation, which allowed you to factor in inflation when calculating the rise in price, reducing the taxable amount. In the new budget, while the final tax rate has been lowered, the benefit of indexation has been removed. This change led to a negative reaction from real estate stocks.

• Massive Focus on Bihar & Andhra Pradesh: There was significant attention given to two new allies, Bihar and Andhra Pradesh. The BJP government, lacking a full majority, required support from the JDU and TDP, led by Nitish Kumar and Chandrababu Naidu, respectively. Both allies had requested special status for their states. While special status was not granted, the budget has directed substantial attention and resources to these two states.

₹26,000 crore has been allocated for various infrastructure projects in Bihar, and ₹15,000 crore for the development of Andhra Pradesh’s new capital, Amaravati. Despite this, the special status requested by these allies has not been granted, and their reaction to this change remains to be seen.

Bihar has received the largest share of tourism funding, with numerous announcements. The Vishnu Path temple in Gaya and the Mahabodhi temple in Bodhgaya will be developed with corridors similar to the Kashi Vishwanath temple corridor. Additionally, Nalanda University will be developed into a Center of Learning and a Tourism Hub.

The government will allocate ₹11,500 crore to Bihar for flood mitigation, along with funding for a few other eastern states. This demonstrates significant focus on Bihar and some attention to Andhra Pradesh. However, it remains to be seen how these developments will be received politically.

• Internship & Jobs – With unemployment being a major issue leading up to the election, several announcements were made to boost employment. These include an internship program offering opportunities for 1 crore young people at the top 500 companies over the next five years, similar to promises made in the Congress party’s manifesto. Additionally, ₹1.48 lakh crore has been allocated for education, employment, and skilling. Financial support will be provided for education loans up to ₹10 lakh for higher education in domestic colleges for those not eligible for other government schemes. Furthermore, newly employed workers in the formal sector will receive one month’s wage in three instalments of ₹15,000.

Some of these measures include a subsidy on EPFO for new employees. However, it appears that many of these announcements are focused on the formal sector and not on gig or informal workers, where the true unemployment problem persists in the country.

There was mention of enhancing women’s participation in the workforce, with an allocation of ₹3 lakh crore for schemes benefiting women and girls. However, details on specific schemes and their funding are not yet available and require further examination of the fine print.

Additionally, there are plans to develop women’s hostels, crèches, and skilling programs, though the specifics of these initiatives are not yet clearly defined.

What’s Cheaper

–           Mobile Phones, accessories and chargers – custom duty down by 15%

–           Gold and silver – custom duty reduced by 6%

–           Platinum – custom duty reduced by 6.5%

–           Three cancer treatment medicines exempted from basic custom duty

–           TDS on e-commerce reduced from 1% to 0.1%

What’s more expensive

–           Non-biodegradable plastic – custom duty up by 25%

–           Certain telecom equipment increased – custom duty increased from 10% to 15%

–           Ammonium nitrate – custom duty to be increased by 10% (commonly used infertilisers; in pyrotechnics, herbicides, and insecticides; and in the manufacture of nitrous oxide.)

The Shortcomings

Some of the major shortcomings identified by analysts in the budget includes:

1.  Finance Minister Nirmala Sitharaman began by emphasizing a focus on the “garib” (poor), “yuva” (youth), “annadata” farmers, and “nari” (women). However, there were no specific announcements targeting these four categories within the budget.
2.  The government has maintained the capital expenditure at ₹11 lakh 11 crore, the same level as in the interim budget.

Until now, a key feature of the Modi government’s approach over its last two terms has been a strong emphasis on increasing capital expenditure. For the year 2023-24, the government highlighted a capital expenditure of ₹10 lakh crore. Capital expenditure refers to the amount of money the government allocates for building roads, bridges, and other infrastructure projects within the country.

Previously set at ₹4 lakh crore, capital expenditure was increased to ₹10 lakh crore for one year, but it hasn’t risen further since then. Additionally, there has been a challenge in fully utilizing this allocated amount. We will need to monitor how this situation develops.

•  There were no specific announcements regarding the railways, despite the recent accidents, delays, outdated facilities, and old train routes experienced over the past year. Previously, railways had a dedicated budget, but now there is barely any mention of them in the current budget. The removal of indexation on real estate is expected to negatively impact many individuals.
• The stock market reacted sharply to the increased short-term capital gains tax, the rise in securities transaction tax, and the decline in real estate stocks, with both the Sensex and Nifty dropping about 1% during the speech. However, they have since recovered.

The most intriguing political reaction came from Bihar Chief Minister Nitish Kumar, who gave a cryptic response: “Sab kuch dheere dheere jaan jayenge,” meaning that details will be revealed slowly over time. The exact implications of his statement are unclear, so we will need to closely examine the fine print of the budget and monitor its political fallout.

24-07-2024

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