With the Union Budget 2024 having concluded only a few hours before, the market is abuzz with analyst opinions and investor commentary. D-Street expert recommendations may soon follow, close on the heels of the Nifty and Sensex dropping several points in the aftermath of the budget announcements. However, while D-Street expert recommendations may undoubtedly be useful for investors, it’s crucial to understand the A to Z of the Union Budget, so taxpayers, business owners and traders can appreciate the overall impact of the proposals put forth this year.
To this end, Samco’s Ashwin Ramani breaks down the key highlights of the Union Budget 2024 for us. Speaking of the main proposals announced by Finance Minister Nirmala Sitharaman and the general essence of the Union Budget, here is what Ramani shares:
“The Union Budget 2024, presented by Finance Minister Nirmala Sitharaman on July 23, emphasised simplifying the tax regime and fostering economic growth. Key highlights include significant tax reliefs such as zero tax for incomes up to Rs 7.75 lakh under the new tax regime and an increased standard deduction. The abolition of angel tax is also expected to boost startup growth and investment.
Overall, the budget has taken a balanced approach by targeting both popular and strategic areas to uplift the middle class and rural communities — thereby boosting disposable income and consumer spending.”
The budget announcement included various tax-related announcements — some that offered relief and others that brought in higher taxes for certain incomes. Let us decode the Union Budget 2024 with Samco’s Ashwin Ramani, so traders and investors can better appreciate D-Street expert recommendations for the coming week.
Nine Priorities in Focus
The Union Budget focused on nine key areas that are a priority for ‘Viksit Bharat’ — our very own dream of a developed Indian economy that shines on the global stage. These key areas, which formed the foundation of the budget this year, include:
- Productivity and resilience in agriculture
- Employment and skilling
- Inclusive human resource development and social justice
- Manufacturing and services
- Urban development
- Energy security
- Infrastructure
- Innovation, research, and development
- Next generation reforms
Budgetary Allocation for Different Sectors
The Union Budget pegged the allocation for capital expenditure at Rs. 11,11,111 crore. Furthermore, sectoral allocations for different economic segments were announced as follows:[1]
- Defence: Rs 4,54,773 cr
- Rural: Rs 2,65,808 cr
- Agriculture: Rs 1,51,851 cr
- Home affairs: Rs 1,50,983 cr
- Education: Rs 1,25,638 cr
- IT & Telecom: Rs 1,16,342 cr
- Health: Rs 89,287 cr
- Energy: Rs 68,769 cr
- Social welfare: Rs 56,501 cr
- Commerce & Industry: Rs 47,559 cr
The prioritisation of the defence sector may have been expected. However, rural development and agricultural reforms also take a front seat in this year’s budget. These measures could lead to accelerated development in non-urban regions and promote domestic production.
Revised Fiscal Deficit
The Union Budget 2024 targets a fiscal deficit of 4.9% of GDP, down from the previous year's revised estimate of 5.6%. This reduction aims to stabilise the government's finances while accommodating increased spending on infrastructure and social schemes. Such a balanced approach is expected to reassure investors and credit rating agencies about India’s commitment to maintaining financial discipline while promoting economic expansion.
Tax Reforms
Over the years, the call for rationalisation of capital gains tax has steadily been getting louder. The Union Budget 2024 finally addresses several long-pending issues by introducing major changes to the direct taxation system in India. Here’s a quick overview of the key reforms.
- The tax rate on short-term capital gains (STCG) on financial assets was increased to 20% from 15%.
- The tax rate on long-term capital gains (LTCG) on non-financial and financial assets is now 12.5% without indexation benefits.
- The exemption limit for long-term capital gains is now Rs. 1.25 lakh per financial year instead of Rs. 1 lakh per financial year.
- The Securities Transaction Tax (STT) on the sale of futures and options contracts was increased to 0.02% and 0.1%, respectively.
- The basic exemption limit has been hiked to Rs. 3 lakh from Rs. 2.5 lakh.
- Angel tax has been abolished entirely for all classes of investors.
- Standard Deduction for individuals with salary income was raised to Rs. 75,000 from Rs. 50,000.
- The deduction on the family pension is now Rs. 25,000 per financial year instead of Rs. 15,000 per financial year.
The new income tax regime’s tax slabs have been revised to make it more appealing to middle-income taxpayers. Individuals earning between Rs. 6 lakh to Rs. 7 lakh will now be taxed at 5% (instead of 10%). Similarly, taxpayers earning between Rs. 9 lakh to Rs. 10 lakh will now be taxed at 10% (instead of 15%).
Benefits to Bihar and Andhra
To further the goal of ‘Viksit Bharat,’ the Union Budget has allocated substantial funds to benefit both Bihar and Andhra Pradesh. Bihar is set to receive significant infrastructure boosts, including new airports, medical colleges, sports facilities and highways. Additionally, Rs. 26,000 crore has been earmarked for highway projects in the state. For Andhra Pradesh, Rs. 15,000 crore has been allocated for development projects, with a focus on fulfilling commitments under the Andhra Pradesh Reorganisation Act, including the Polavaram Dam project. These proposals are likely to boost the country’s infrastructure sector.
Urban and Rural Housing Initiatives
The budget has allocated Rs. 10 lakh crores to address the needs of 1 crore urban poor and middle-class families. There is also scope for policy reforms to ensure efficient and transparent rental housing markets to benefit homeowners and tenants. Rural infrastructure was also in the spotlight, with the fourth phase of the Pradhan Mantri Gram Sadak Yojana due to be launched to improve connectivity to around 25,000 rural homes. Additionally, the emphasis on infrastructure like roads and bridges will further enhance connectivity and economic growth.
Changes in Customs Duty
The basic customs duty (BCD) on mobile phones, mobile phone printed circuit board assembly (PCBA), and chargers was reduced to 15% from 20%. This move is likely to significantly reduce the price of mobile phones in India.
Customs duty on precious metals like gold and silver has also been reduced to 6% from 15%, whereas the duty on platinum has also been slashed to 6.4%. The reduction in duty is expected to curb the illegal smuggling of precious metals into India. Additionally, three life-saving cancer drugs are now exempt entirely from customs duty.
The Bottom Line: A Balanced and Growth-Focused Budget
All things considered, the Union Budget 2024 presents a balanced approach to economic growth by focusing on tax reforms, infrastructure development and social welfare. With significant allocations across sectors, revised tax slabs and initiatives for both urban and rural areas, the budget aims to boost consumer spending and investor confidence. While challenges remain, the overall direction seems positive for India's economic future.
For traders and investors, the need of the hour is to factor in the changes in tax rates and STT. The brokerage calculators from Samco Securities Limited can be handy for traders seeking to understand the impact of these revised tax rates on the cost of trading. This tool is accessible free of cost on the Samco Securities Limited website, along with other calculators, knowledge resources and support solutions.
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