Tax cuts to incentives for SMEs: What to watch for in Union Budget

The Central Government is set to present the Union Budget in Parliament on Wednesday before the 2023 Lok Sabha elections. The budget will gauge the government's commitment to financial responsibility as there are increasing expectations for lower taxes and increased production before the election.

Union Finance Minister Nirmala Sitharaman may provide relief to the middle class by adjusting income tax brackets and increase spending on marginalized communities through various government programs.

Prime Minister Narendra Modi-led government’s budget comes amid rising interest rates and slowing global growth, which could hamper its outright populism.   

Stock Market

The stock market is also keeping an eye on the budget speech by the FM Sitharaman to see what Asia’s third biggest economy has in store for the investors. Amid budget expectation, US short seller Hindenburg has already dropped an ‘atom bomb’ at the Adani Group by making serious allegations against the billionaire Gautam Adani's conglomerate, causing a drop in Adani's shares and impacting the Indian market.

Here are some of the measures to look out for in the budget:

FM Sitharaman's recent statement that she knows the ‘pressure of the middle class’ hints that she would give some relief to them by putting some money in  the pockets of the taxpayers. But the relief will come with a cost.

"Any tinkering with rates at the lower income brackets will be compensated by increasing the cess/surcharge for the upper income brackets," Yes Bank economists led by Indranil Pan said, projecting a 15% rise in tax receipts next year.

In order to encourage domestic manufacturing, the Union Finance Minister may raise some import duties on private jets, helicopters, high-end electronic items and jewelery, as per Economic Times.

Social Sector

Last month, the country’s unemployment rate surged to 16-month high of 8.3 percent. According to DBS Group economist Radhika Rao, the prime focus of the budget will be on rural job guarantee with crop insurance, rural road infrastructure and low-cost housing also getting attention.

The central government’s final full-year spending plan may widen the ambit of small savings plans for the elderly and the girl child, said Soumya Kanti Ghosh, an economist with State Bank of India.

Manufacturing

As the country is positioning itself as an alternative to China in the global supply chain, manufacturers – who are willing to set up factories – expect more financial benefits from the government. Yes Bank analysts suggest fine-tuning strategies to boost manufacturing and employment by expanding output-linked benefits.

Budget wishlist for other sectors includes:

• Extension of long term capital gains tax to immovable property, unlisted shares
• Compensation to oil retailers for selling fuel below market prices
• Reduction in taxes on cryptoassets announced in last budget
• Cut in import taxes on gold to 10% to rein in illegal shipments
• Increase in defense budget amid border tensions with China

Higher capital allocation for banks, more freedom to raise capital