Budget Expectations: New Tax Regime To Short Term Capital Gains, Modi 3.0 May Focus On Tax Base Of Citizens

The Union Budget is a little over a week away, and the consensus is that this first budget of Modi 3.0 is likely to focus on tweaking the tax base of Indian citizens, while keeping the fiscal target unchanged. Anand K Rathi, co-founder of Mira Money believes the Budget 2024 is likely to be a "regular' one with no major changes or deductions expected.

However, Rathi also added, "The focus will likely be on increasing the tax base, which is currently very limited."

Here are 8 key tax benefits that can be expected from Finance Minister Nirmala Sitharaman as per Anand K Rathi, co-founder of Mira Money:

1. Tax Reforms - People anticipate tax reforms every time the budget happens. However, Rathi believes this year won't bring any significant changes to Section 80C, HRA, or similar provisions. This is primarily because the government had already announced a major new tax regime last year. However, he also thinks that this time around, they will likely focus on enhancing the new tax regime. They might increase the upper limit of lower taxes from 15 lakhs to 20 lakhs. Rathi does not expect the government to increase benefits under Section 80C from 1.5 lakhs to 2 lakhs, as it would be counterintuitive given their aim to move away from such provisions. Regarding personal income tax, in his view, there won't be any substantial changes.

2. For small and medium-sized industries - The government has shown a commitment to their well-being. The corporate tax level, currently at about 25%, is relatively low. Industries are advocating for simpler tax reforms, quicker credit issuance, and easier compliance. The government's focus on simplifying business operations in India, which are currently quite complex, is a promising sign.

3. Production-Linked Incentive (PLI)- The schemes are commendable, and the government might focus on enhancing them further. Corporates have a few complaints, mostly from the operational side.

4. GST - There's been discussion about reducing the 18% GST on health insurance and mutual fund distributors. However, since GST issues are handled by the GST council, which meets periodically, significant changes in GST are unlikely to be part of this budget. While there's demand for fewer GST tax slabs, any major revisions are unlikely to occur in this budget.

5. Basic Exemption Limit Increase - Rathi believes the new income tax rule will be in for an upgrade, particularly with an increase in the basic exemption limit potentially rising to ₹ 15 lakh or 20 lakh.

6. Focus on renewables and EVs - He expects the upcoming budget to place substantial emphasis on renewable energy and electric vehicles (EVs), with the government likely to introduce incentives to promote these sectors. This focus aligns with international commitments to reduce carbon emissions, and consequently, budget allocations for renewables may be higher than in previous years.

7. Boosting rural consumption - There will be the impetus to boost rural consumption through increased funding for infrastructure projects that employ unorganized labourers. Tax incentives may also be introduced for the textile secretary who is employed by a significant portion of the unorganized sector. Beyond these areas, Rathi does not foresee major changes, particularly in terms of widespread tax cuts. The current equity capital gains tax rates are expected to remain stable as the system appears to be functioning smoothly.

8. Changes in debts and arbitrage funds - One notable potential change could involve the tax structure for arbitrage funds. Banks facing difficulties in raising deposits might push for this adjustment. Arbitrage funds are taxed like equity, but this gap might be addressed to encourage more money flow into deposits.

9. Short-Term Capital Gains Tax - The short-term capital gains tax on equity could be increased from the current 15%, potentially aligning it with income tax rates.

The Budget session is likely to begin on July 22nd and will continue till August 12. Finance Minister Nirmala Sitharaman will present her seventh Budget on July 23.