Finance Minister Nirmala Sitharaman budget clearly indicate a shift in priorities for Prime Minister Narendra Modi’s new dispensation, with ramped up allocations for rural development, skilling, jobs and agriculture.
Bad news for investors
The budget increased tax on long-term capital gains on all financial and non-financial assets to 12.5% from 10%. Assets held for over a year are considered long term. Short-term capital gains will now be taxed at 20% instead of 15%.
The budget has also increased the securities transaction tax on derivatives trading. This was widely expected, with the Economic Survey released a day earlier raising red flags about rising speculation and growing participation of retail investors in Indian equity markets.
3 new schemes for job generation
Sitharaman has announced three new schemes to address India’s chronic employment challenge that will cost the government £18.5 bn over the next five years.
First-time job entrants in the formal sector will receive a direct cash transfer equivalent to their monthly salary (or up to a maximum of 15,000 rupees) in addition to their first month's pay.
Additionally, two more programmes have been announced to boost manufacturing jobs through which the government will provide employment-linked incentives to both employees and employers.
Tax relief for start-ups, middle classes and foreign corporates
India's burgeoning start-up ecosystem will have something to cheer about, with an angel tax levied on capital raised by private companies now being abolished. Minor tweaks were also announced to personal income taxes, with expected savings of up to Rs 17,500 in outgo for people who opt for the new tax regime.
Corporate tax on foreign companies has also been reduced from 40% to 35% to promote investments.
Support for Andhra, Bihar
The budget sought to satisfy spending demands from the BJP's two key regional allies - Janata Dal (United) of Bihar and Telugu Desam Party of Andhra Pradesh - which hold 28 seats in India’s lower house.
The finance minister announced financial support of 150 bn rupees for the development of Andhra Pradesh’s capital, with a promise for more money in the coming years. A slew of new airport, road and power projects were sanctioned in Bihar.
Reduced budget deficit
The budget has set a new, reduced target for its fiscal deficit - the amount by which spending exceeds revenue - at 4.9% for this financial year, below the 5.1% announced earlier.
The number is closely watched by ratings agencies and has a direct bearing on interest rates.
A significant dividend payout of more than $25bn from the country’s central bank has enabled the government to reduce its deficit without cutting expenditure significantly. Proposed capital expenditure on infrastructure creation hasn't been revised from the interim budget.
NRI to pay higher tax on these capital gains
Budget 2024 proposes a higher tax on certain capital gains for non-residents. However, it has also proposed to reduce on certain assets. The new tax rate will apply only on transfers made on or after July 23, 2024. The revision is aimed at bringing parity between resident and non resident taxation structure.
NRI tax hiked on these assets
In Budget 2024, long-term capital gains resulting on transfer has been raised to 12.5% for certain assets.
Long-term capital gains exceeding Rs 125,000 will now be taxable at 12.5% instead of 10% from 23 July 2024.
Short-term capital gains is hiked to 20% from 15%.
Indexation benefit on sale of property removed; new LTCG rate of 12.5% announced for capital gains on sale of property.
NRI tax rate reduced on these assets
While long-term capital gains is reduced from 20% to 12.5%. Long-term capital gains will not be applicable for transfers on or after July 23, 2024.
According to the Budget 2024 announcement, "Parity in taxation between resident and non-resident assesses: To bring parity of taxation between residents and non-residents, corresponding amendments to section 115AD, 115AB, 115AC, 115ACA and 115E are being made to align the rates of taxation in respect of long-term capital gains proposed under section 112A and 112 and rates of short term capital gains proposed under section 111A."
Rationalisation of tax deducted at source rates
As per the budget 2024, "There are various provisions of Tax Deduction at Source (TDS) with different thresholds and multiple rates between 0.1%, 1%, 2%, 5%, 10%, 20%, 30% and above. To improve ease of doing business and better compliance by taxpayers, the TDS rates are proposed to be reduced. However, no change would occur with respect to sections such as TDS on salary, TDS on virtual digital assets, TDS on winnings from lottery etc/ race horses, payment on transfer of immovable property and payments to non-residents, TDS rates for TDS on contracts etc."
Capex unchanged
The outlay on state-led capital expenditure on infrastructure creation has remained unchanged from the $134 bn announced in the interim budget. “However, it is clear that the focus has now become more diversified to other areas like employment, small businesses and social welfare,” said Shubhada Rao, economist and founder of QuantEco Research.
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Thrust on quality job creation, skilling: FICCI chief Anish Shah
FICCI president Dr Anish Shah congratulated the finance minister for delivering a growth-oriented budget that has delivered both short term demand stimulus and actions focused on medium to long term growth imperatives, while maintaining fiscal discipline. The budget is inclusive, with a strong thrust on quality job creation and skilling. It also strikes a balance between agriculture and manufacturing, with elements of services, he added.
There is continuity in policy announcements. The focus on simplification and ease of doing business, boost to manufacturing, focus on research and innovation, thrust on public capex, use of technology, support to women, farmers and MSMEs, and promoting sustainability are the key themes that resonate once again in this Union Budget proposals.
“The focus areas of budget are very much in line with the FICCI’s key priorities for the industry and we are happy to note that many of FICCI’s suggestions have been considered in this budget, as seen in the proposals for accelerating agriculture research, enhancing participation of women workforce in manufacturing, factor market reforms for improving manufacturing competitiveness as well as measures to promote green economy,” he added.
