Decoding Indian Union Budget 2022-23

From much-awaited cut on LTCG (Long-term Capital Gains), customs duty rationalisation, investments in affordable housing to legitimising the digital assets through cryptocurrency taxation, India’s Union budget 2022-23 displayed several realistic and optimistic goals for the Indian economy. With the target of fiscal deficit at 6.8% of GDP, India’s fiscal deficit is not pegged at 6.9% in FY22. To understand the strategic pillars of Union Budget 2023 (UB23), Top Gun (public speaking and debate club) at SP Jain conducted a live webinar on February 3, 2022, on Decoding Indian Union Budget 2023. The webinar aimed to understand these important elements of the budget 2023, its macro implications and explore the key highlights.

The Formality of Budget and the Legal Mandate Associated With It

The requirement of the budget goes way back to the three articles – Article 110, Article 111 and Article 112 of the Indian Constitution. These articles mention the budget as an annual financial statement, wherein the Finance Minister of the country lays out a statement or a receipt of all the estimated expenditure of the government for that year. Now, this involves many factors; some mandatory expenses and receipts have to be ensured by the ruling government to list and bear for the welfare of its citizens. This is followed by an economic survey. An interesting aspect of the union budget is that, like a money bill, it is not argued against or debated for, in the parliament. This, sometimes, gives an edge to the ruling government to pass relevant acts as bills¾the Aadhaar bill is one such example, which came into effect undebated through Bharatiya Janata Party, a prominent political party in India. However, a bill can always be challenged if it involves discrimination or is in contradiction of an existing law/article or neglecting certain sections of the society, but it is unlikely to come through Judiciary on Suo moto.

The Key Focus Areas

With the outlay on CapEx as INR 7.5 lakh crores, the Government of India (GOI) has tried to focus on infrastructure, energy, and start-ups this year by having a development-oriented Union Budget 2022. The pandemic has been around for the third consecutive year now, which made this year’s budget strategically important to aim at the recovery in economic activity and create demand by monetising and increasing the spending cycle. With the commitment to reduce the fiscal deficit, the budget is focussed on long-term and robust implications rather than immediate recovery plans, which is why this budget allocation seems reasonable and achievable. Focussed on larger infrastructure development, transportation, and housing, this budget hasn’t shown any significant increase in the larger tax structure and is more allocated to Capital Expenditure as it jumped over 35% from last year and a projected 33% for FY23 over FY22. Along with this, the appeal, and litigations, especially associated with IT filings and defaulters, can be deferred and the revenue authorities can Suo moto alter the litigation judgement after the question of law has been decided. This would help reduce the burden of pending litigations/appeals on the judiciary. A positive step towards electric vehicles can be seen with a battery swapping policy along with the standardisation of the battery and charging interface.

Encouraging the Boost in the Economy

SMEs and MSMEs will be particularly encouraged to undergo development, which will play a role in boosting the economy. GOI is also trying to encourage various business activities by levying only 15% tax on manufacturing as compared to the earlier 30%. With increased lending requirements, this would also enable banks to increase capital circulation; private banks and NBFCs will also benefit from this budget along with the PSUs. Agriculture has also been allocated funds, although this allocation might not be enough considering the controversy of the recently proposed farm bill. The infrastructure-centricity is another contrasting aspect of the budget. This interprets directly into having more opportunities. Under PMAY (Pradhan Mantri Awas Yojana), INR 48,000 crores have been allocated aiming at the completion of 80 lakh homes. This will create thrust in affordable housing especially focussed on the urbanisation of rural areas. Under PM Gati Shakti, increased investments are planned in roads, railways, mass transportation, ports, airports, waterways, logistics, and infrastructure, which will boost employment opportunities and provide money directly to people. 100 new Vande Bharat trains in the next three years and 100 PM GS Cargo tunnels could also drive the infrastructure development. The positively impacted sectors are lending institutions – banks and NBFCs, infrastructure construction (hence cement), MSMEs, consumer electrical supplies and electronics, defence, water transportation, energy, real estate, telecommunication, and the credit rating market. Some of the negatively impacted sectors are agriculture, rural employment -MNREGA allocation cut by 25%, metals, housing (estimated increase in interest rates), and FMCG.

Income Tax

There’s been no reduction in fuel taxation, although we saw some reduction in customs duty on fuel. This is applicable even for the fuel in the airline industry, which has been very crucial during the entire pandemic. The government has not provided any rebate on the higher taxes on airline fuel under any provision. Income tax has not been altered, which might cause disappointment in salaried professionals. Corporate tax rates are at 15% on manufacturing companies. LTCG surcharges have been capped at 15%, reduced from the previous year’s 37%. Customs duties on cut and polished precious stones are now reduced to 5%. An additional excise duty of INR 2/litre would be applicable on unblended fuel from October 2022. Basic custom duties on EVs reduced from the current 125%. Taxpayers have more freedom to file updated returns for additional taxes within 2 years of the assessment year. The interest rate for this remains the same with some additional relief in penalties.

The Talk of the Nation – Virtual Assets

The legitimacy or legality of any asset cannot be defined by the tax that is being levied on it. As surprising as it was to have the Finance Minister talk about digital currencies in a legitimate context, many view the 30% taxation and 1% TDS on virtual assets as a discouraging act. On the other hand, this could be viewed as a step in a positive direction – a government that explicitly refused to have cryptocurrency is now permitting virtual assets, albeit with a heavy tax. This could be paving the way for cryptocurrency being recognised as a legal asset in India. With rapid technological advancements, GOI is reluctant to declare the cryptocurrency as being illegal and defines the entire category as VDA – anything other than Indian Rupee and foreign currency will be called Virtual Digital Assets. This opens a block of grey areas and makes it unclear how digital assets can be sub-caterogised as an income type. Since the tax levied on cryptocurrency is higher than the “other sources” categories, it is difficult to predict which category will it fall under. RBI has introduced CBDC – Central Bank Digital Currency that will bring in Digital Rupee, estimated to be issued by RBI 2022-2023 onwards. The financial cabinet and Indian economy still need to make a lot of progress befor adapting cryptocurrencies. With the optimism reflected in UB23, we can hope that India will economically sustain the losses of the pandemic if the set goals are met. Stepping into a digital future with crypto taxation and the introduction of CBDC, the new budget indicates that India will pave the way for a digitally-driven economy. Executed with a strong commitment channelled in the right direction, UB23 might steer India towards achieving the dream of being a USD 5 trillion economy by 2025.

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About the author: Pranjali Jha (GMBA’21)

Pranjali Jha is a Global MBA student at SP Jain School of Global Management.