Member's Article
A Prospective Outlook - Union Budget 2025!
[Article written and submitted by CA Tushar Makkar]
Mrs Nirmala Sitharaman, India's finance minister, is all set to present the Union Budget 2025 on February 1, 2025. It is highly awaited as it has created a wave of relief in the masses anticipating some relief in the form of tax reforms. The scenario repeats itself every year, however, this perspective outlook is important to level up our expectations and align it with reality.
All eyes are on Budget 2025 whether you are an employee, business person, or an industrialist. The budget is expected to simplify the taxes, revamp tax reforms, and boost economic growth.
Expected Income Tax Reforms
Tax Breaks for the Middle-Class
The upcoming budget might offer tax breaks for middle-class individuals earning up to ₹15 lakh each year. This group is vital for India’s economy. By cutting taxes, the government hopes to increase the Take-Home Pay encouraging Savings and Investments. Having more money to spend can drive consumer spending, which benefits industries like retail, automotive, and housing. This plan could help families struggling with rising prices by providing financial relief.
Changes in Tax Brackets
Anticipation for adjustments in tax brackets to make them fairer and reduce the tax load across different income levels. The current tax system offers limited relief. Possible changes include:
Broader Income Ranges, lowering top Tax Rates by cutting the 30% tax rate, or increasing the income threshold for the top bracket could help higher earners and boost economic activity.
Inflation Adjustment: Aligning tax brackets with inflation ensures people don’t pay more taxes as their income rises.
Housing and Investment
If you're purchasing a home for the first time, you may be eligible for additional tax benefits under Section 80EE. This provision lets you deduct more on the interest from your home loan than the usual limit, aiming to make buying a first home more affordable.
The government is also considering lowering stamp duty rates, particularly in urban areas, to reduce the overall cost of property purchases. This reduction could help more people buy homes and stimulate real estate investment, which would, in turn, boost economic growth.
Employee Expectations
Right now, taxpayers can deduct up to ₹1.5 lakh under Section 80C, a limit that hasn't changed in years. Many people are hoping for an increase to ₹2.5 lakh. This change would allow more opportunities for savings and investments that reduce taxable income.
Currently, NPS contributors get an extra ₹50,000 deduction beyond Section 80C under Section 80CCD (1B). There is hope that the government will either raise this limit or offer additional tax benefits to encourage people to save more for retirement.
Simplifying Regulations
The Income Tax Act is often seen as difficult to understand due to its old rules and confusing sections. To make it easier for people to follow the tax laws, the government plans to roll out the Direct Tax Code. This new code is designed to solve the problems of the current tax system. To reduce the burden of complex regulations on small businesses, the government may streamline paperwork requirements that may help businesses focus more on their growth.
Infrastructure Development
The government is set to significantly increase spending on infrastructure development in several key areas:
Transportation: There will be major investments aimed at enhancing the railway system. This includes the introduction of high-speed Vande Bharat trains and improvements in rail freight services to boost efficiency in travel and goods transport.
Urban Development: The budget will prioritize the development of sustainable and smart cities. With integrated transport systems and strong infrastructure to accommodate India's rapidly expanding urban population.
Rural Connectivity: Upgrades in rural infrastructure are planned to improve access to markets, healthcare, and education, promoting growth that benefits everyone.
Collaboration with Private Companies
To fast-track infrastructure projects, the government aims to partner more with private companies, offering various incentives:
Increased Financial Support (VGF): The budget might provide additional financial assistance to make projects more appealing to private investors.
Clear Policies: Establishing clear guidelines is intended to encourage greater private sector participation in the development and management of infrastructure projects.
Incentivise Eco-Friendly Projects: The government is considering incentives for the use of sustainable building materials and developing a sustainability rating system to encourage responsible urban growth.
Increased Funding for Farming
The government is expected to raise its farming budget by over 15%, the biggest rise in six years, bringing the total to around ₹1.7 lakh crore.
Expanding the PM-Kisan Scheme: More funds will go to the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) to provide financial help to more farmers across the country.
Enhancing Agri Stack Programs: More money will support digital farming projects like Agri Stack, creating a detailed digital database for farmers.
Supply Chain Infrastructure Investments.
Water management, cold storage facilities, and building transportation networks aim to strengthen the farming supply chain, improve market access for farmers, and raise rural incomes.
Healthcare and Education
Healthcare: Push from healthcare professionals to increase spending to 2.5-3% of the nation’s GDP, similar to what is seen globally. To help make healthcare more affordable, there are expectations for a reduction in GST on health insurance premiums, currently at 18%. Additionally, there is hope for an increase in the tax deduction limit for health insurance premiums under Section 80D, which would provide additional financial relief to those with policies.
Education: Anticipating a substantial budget increase to enhance both schools and higher education. This funding will focus on upgrading facilities, training teachers, and incorporating digital learning tools to improve education quality across the country. People in the education field are pressing for the GST on education services to be zero-rated.
Promotion of Clean Energy
The government is targeting 500 gigawatts (GW) of renewable energy by 2030 and plans to implement supportive policies to achieve this:
Incentivise Solar and Wind Energy: There may be tax breaks to boost investments in solar and wind energy, including reductions in customs duties and GST on renewable energy equipment making it more affordable.
Support for Green Hydrogen: Green hydrogen is seen as crucial for the energy transition and might offer financial support for its production and use. This could involve funding for research and development and subsidies to help lower costs.
Investment in Green Technologies
Energy Storage Solutions: To manage the inconsistency of renewable energy, there are plans to invest in energy storage systems like advanced batteries. This would stabilize the grid and ensure a reliable power supply.
Electric Mobility: Funds might be allocated for developing electric vehicle (EV) infrastructure, such as charging stations, with incentives for manufacturers and consumers to increase EV adoption.
Vehicle Replacement Policy
To encourage environmental sustainability and increase new vehicle sales, the government may enhance the vehicle scrappage policy:
Incentivise for Scrapping Old Vehicles: Offering financial incentives for trading in old, polluting vehicles for new, environmentally friendly ones.
Tax Discounts: Providing additional tax breaks for those scrapping old vehicles and buying new ones, will encourage the adoption of cleaner technologies.
Support for Small Businesses
The government plans to help Micro, Small, and Medium Enterprises (MSMEs) by making loans more accessible:
Loan Guarantee Programs: These programs aim to make it easier for small businesses to get loans, allowing them to invest in technology and grow.
Financial Incentives: The government may offer incentives to encourage small businesses to adopt new technologies and innovate, increasing their productivity and market reach.
Conclusion
As we analyze and anticipate the current economic needs, we wait for the budget to unfold and see whether our expectations are met, or if we will have to wait for the same scenario to repeat itself until the next Union Budget of India.
