Finance Minister Nirmala Sitharaman presented the Union Budget 2024 in the Lok Sabha on February 1. This budget is considered interim as it precedes the Lok Sabha Elections. No tax changes were announced in the slabs for both the old and new regimes. The complete budget is scheduled to be presented in July after the formation of the new government following the elections.
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What is the Interim Budget All About?
In India, an interim budget is a financial statement. It is presented by the government typically before the Lok Sabha (lower house of Parliament) elections. This budget serves as a temporary or interim measure to meet the government’s expenditure needs. This is until a new government is formed and a full-fledged budget can be presented.
The key features of an interim budget in India include:
- Expenditure for the Upcoming Months: The interim budget outlines the government’s planned expenditure for the immediate future. This is until a new government is elected and a regular budget can be presented.
- No Major Policy Changes: Interim budgets usually refrain from introducing major policy changes or new initiatives. This is because the government does not have the mandate to make significant decisions at the present that would impact the long-term financial trajectory of the country.
- Routine Expenditures: It addresses routine expenditures. This ensures that essential services and government functions continue to operate smoothly until a new government takes charge.
The primary purpose of presenting an interim budget is to avoid a financial vacuum. It is also to keep the government functioning during the transitional period before the elections. It is considered a responsible measure to ensure the continuity of essential services and financial stability in the country. After the elections and the formation of a new government, a full budget is presented. This new budget provides a comprehensive financial roadmap for the entire fiscal year.
Interim Budget 2024 – No Tax Changes
Finance Minister Sitharaman had previously stated that there would be no major announcements in this budget due to the upcoming polls in April-May. In Budget 2023, the Modi Government introduced several new regulations for income tax. One significant announcement regarding personal taxation was the designation of the new income tax regime as the default option. However, citizens have the choice to opt for the benefits of the old tax regime.
Old Tax Regime
- Income up to ₹2.5 is exempt from taxation under the old tax regime.
- Income between ₹2.5 to ₹5 lakh is taxed at the rate of 5 percent under the old tax regime.
- Personal income from ₹5 lakh to ₹10 lakh is taxed at a rate of 20 percent in the old regime.
- Under the old regime, personal income above ₹10 lakh is taxed at a rate of 30 percent
New Tax Regime
- No tax would be levied for income up to ₹3 lakh in the new tax regime.
- Income between ₹3-6 lakh would be taxed at 5 percent (with a tax rebate under Section 87A available).
- Income between ₹6-9 lakh would be taxed at 10 percent (with a tax rebate under Section 87A available on income up to ₹7 lakh).
- Income between ₹9-12 lakh would be taxed at 15 percent.
- Income between ₹12-15 lakh would be taxed at 20 percent.
- Income of ₹15 lakh and above will be taxed at 30 percent.
It’s important to note that the tax rates in the new tax regime are uniform for all categories of individuals, regardless of their age.
Finance Minister’s interim budget is balanced from the point of view of adhering to fiscal prudence. It focuses on boosting infrastructure growth, and prioritizing focus on four key sections of the economy. That is, the people below the poverty threshold, women, youth, and farmers. We believe the FM’s focus on higher outlay for infrastructure will help in boosting the broader economy. In the long term, it might boost investment activity.
Aim of Government Through Interim Budget 2024
The government’s support to MSMEs, women entrepreneurs, and the agricultural sector is apt by addressing their economic needs. FM’s focus on addressing housing challenges by building two crore additional homes under the PM Awas Yojana-Grameen is certainly positive for boosting the housing sector.
While inflation has been a concern globally, the finance minister focused on staying on the path of fiscal prudence in the interim budget. It will surely be an enabler for a stable interest rate scenario in the economy. It also bodes well for the overall financial sector.
How Does The Interim Budget Look In Terms of Tax Changes in 2024?
The Finance Minister’s interim budget appears balanced, taking into account fiscal prudence, promoting infrastructure growth, and prioritizing key sectors of the economy – the underprivileged , women, youth, and farmers. The emphasis on a higher allocation for infrastructure is expected to stimulate the broader economy, fostering long-term investment activity. No tax changes are applicable; all direct and indirect taxation and import duties remain same under the Interim budget 2024.
The middle class had been eagerly anticipating income tax reforms that could help reduce their tax burden. The comprehensive budget, which will include potential changes, is scheduled to be presented in July by the incoming government, whether it is a re-elected administration or a new one.
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Main Highlights – Hardly Any Tax Changes
In the interim budget, the allocation for defense has been raised to Rs 6.21 lakh crores for the financial year 2024-25, up from the previous allocation of Rs 5.94 lakh crores in the last fiscal year. This marks an increase of over 4.5 percent from the previous year.
Notably, the capital budget for defense modernization has been augmented by Rs 10,000 crores. The allocated amount for modernization in the capital budget is now Rs 1.72 lakh crores for the year 2024-25, as compared to Rs 1.62 lakh crores in the previous year.
In the Union Interim Budget 2024-25, Prime Minister Narendra Modi announced that a historic high capital expenditure of Rs 11,11,111 Crore has been allocated. This significant investment is aimed at not only developing India’s modern infrastructure for the 21st century but also creating numerous new job opportunities for the youth.
The emphasis on substantial capital expenditure reflects the government’s commitment to fostering economic growth, enhancing infrastructure, and addressing the employment needs of the country.
Key Takeaways
The Finance Minister’s attention to the housing sector, with plans to build two crore additional homes under the PM Awas Yojana-Grameen, is a positive step towards addressing housing challenges.
Despite global concerns about inflation, the Finance Minister’s commitment to fiscal prudence in the interim budget is likely to contribute to a stable interest rate environment in the economy. This development is favorable for the overall financial sector.