On July 23, Finance Minister Nirmala Sitharaman will unveil the Union Budget for the Financial Year 2024-25, following the interim budget presented on February 1. The upcoming budget is particularly significant as it will be the newly formed government's first full budget in its third term. With the FY 2024-25 union budget, Sitharaman will make history as the first Indian finance minister to present seven consecutive union budgets, surpassing Morarji Desai's record of six.
Analysts believe the reappointment of Nirmala Sitharaman as the finance minister sends a powerful message of policy continuity. The finance minister is expected to uphold the strategic focus of the interim budget: prioritising prudence over populism.
Here's what you can expect from the upcoming union budget:
1. Relief in the new income tax regime
The upcoming budget is expected to enhance the new income tax regime, balancing fiscal consolidation with potential tax relief measures aimed at boosting consumption and economic growth. Key expected changes include:
- Higher income exemption limit from taxation
- Increased standard deduction to provide more relief
These initiatives aim to promote compliance and reduce the tax burden on average taxpayers. However, the old income tax regime is unlikely to see new relief measures, encouraging a transition to the new regime which offers simplified and streamlined tax calculations.
2. Increase in agri-credit target up to Rs. 25 lakh crore
The upcoming union budget is expected to increase the target for agricultural loans by 25% to Rs. 25 lakh crore. In the financial year 2024, the government had initially set a target of Rs. 20 lakh crore, which was surpassed to reach Rs. 24.84 lakh crore. Here's how this target is determined:
- NABARD evaluates agricultural activities in various regions, including the One District, One Crop Initiative, which aims to foster regional development by promoting unique products.
- NABARD then shares the results of this evaluation with the finance ministry, which ultimately makes the final decision on the credit potential target.
3. Ayushman Bharat coverage likely to double
One of the key expected announcements from the upcoming union budget on July 23 revolves around the expansion of the Ayushman Bharat coverage. The Ayushman Bharat Yojana stands as one of the largest healthcare schemes globally, with a primary objective of encompassing over 500 million Indians, specifically those belonging to the economically weaker sections of society. This scheme provides health insurance worth Rs. 5 lakhs, covering medical treatments, hospitalisation expenses, medications, etc.
Highlights of the expected expansion:
- Doubled coverage: The government is planning to double the coverage to Rs. 10 lakhs annually over the next three years.
- Focus on senior citizens: The initial phase will focus on extending the benefits to all citizens aged 70 and above.
- Relief from medical expenses: This expansion aims to provide significant relief as skyrocketing medical expenses are one of the primary reasons that drive families into financial distress.
4. Relief for senior citizens
Under the current tax provisions, senior citizens in India can claim a deduction of up to Rs 50,000 for mediclaim premiums or medical expenditures. This deduction helps alleviate financial burden by reducing the taxable income of senior citizens, who often face substantial healthcare costs. However, given the soaring medical expenses, many senior citizens find this limit inadequate.
As a result, there is an expectation that the government will increase the deduction limit to Rs. 1 lakh in the upcoming budget. Raising this limit would provide additional tax relief and acknowledge the significant financial challenges faced by the elderly population.
5. FM likely to stick to a fiscal deficit of 5.1%
In May, the Indian government reported a significant fiscal surplus of around Rs. 1.6 trillion and a revenue surplus of approximately Rs. 2 trillion. This strong fiscal position suggests that the government is in a strong position to meet or even improve the fiscal deficit targets outlined in the interim Budget for 2024-25.
Key points:
- Fiscal deficit projection: The upcoming budget is expected to retain the fiscal deficit projection of 5.1% of GDP for 2024-25, as highlighted in the interim budget.
- Fiscal glide path: The fiscal glide path, which aims to further reduce the fiscal deficit to 4.5% of GDP in the next financial year, will also remain unchanged.
- Revenue strength: Surplus transfers from the RBI and dividends from PSBs have bolstered the government's revenue, providing a cushion to manage fiscal responsibilities.
- Tax revenues: Robust tax revenues indicate healthy economic activity, supporting the government's financial stability.
6. Defence and railway sectors positioned for growth
Experts believe government initiatives in the defence and railway sectors are poised to greatly enhance investor confidence.
- Defence sector: Initiatives like the introduction of a positive indigenisation list for over 400 defence items and the increase in the Foreign Direct Investment (FDI) limit from 49% to 74% are generating promising opportunities.
- Railway sector: The railway sector is experiencing notable progress with the implementation of the National Rail Plan, which aims to invest Rs 9.2 trillion between FY26 and FY31.
These initiatives highlight the government's commitment to strengthening these critical sectors, making them attractive prospects for investors.
Wrapping up
The upcoming budget holds the potential to impact a wide range of sectors and the overall economic landscape of the country. Expected measures such as increased fiscal consolidation, tax relief, and enhanced support for the defence and additional backing for the defence and railway industries could boost economic growth, increase consumption, and strengthen investor confidence. Therefore, it is crucial to closely assess how these initiatives can impact taxpayers, businesses, and the national economy.
19 July 2024
5 mins read
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