Modi 3.0 readies for Budget 2024: Tax reforms, economic strategies in focus

Union Budget 2024 is expected to introduce reforms in income tax structure with a focus on reducing taxes for lower income brackets to stimulate consumption

With Modi 3.0 underway, all eyes eagerly await the Union Budget of 2024, scheduled for presentation in July. Anticipation is mounting among various sectors including industries, farming communities, taxpayers, and the middle class, ahead of the forthcoming announcement by Union Finance Minister Nirmala Sitharaman.

As the first budget of this new government term, expectations are running high for impactful announcements that could shape India’s economic path in the year ahead.

The Union Budget 2020 saw the Narendra Modi government introducing a new tax regime with lower slabs but without traditional deductions. However, it fell short of anticipated adoption, leading to subsequent adjustments such as the introduction of a standard deduction and rebates up to Rs 700,000 to incentivise taxpayers.

What are the changes expected in the new tax regime?
 

Despite lower tax rates, the new regime has struggled to gain widespread acceptance among taxpayers. In a bid to broaden its appeal, the government is expected to introduce additional deductions under this regime. 

There are discussions circulating about potential enhancements and tax reliefs, notably the proposal to increase the 80C deduction limit from Rs 150,000 to Rs 200,000 under the previous tax regime, a revision last made in 2014 during the tenure of Finance Minister Arun Jaitley under Modi 1.0.

Currently, section 80C benefits are not applicable under the default (new) tax regime. However, there are indications that this benefit may be extended to encourage more taxpayers to opt for it, as suggested by Suresh Surana, Founder of RSM India, as reported by The Financial Express.

Revisions anticipated under the old tax regime
 

Under Section 80C of the Income-tax Act, 1961, deductions encompass a range of savings and investments, including LIC, PPF, RPF contributions, and more, with the current annual limit set at Rs 150,000.

However, stakeholders argue that this limit is restrictive given the breadth of eligible investments such as fixed deposits, Equity Linked Savings Scheme (ELSS), housing loan principal, life insurance premiums, among others. There is anticipation for an increase in this deduction limit to Rs 200,000 per annum to better accommodate the variety of investment options available, according to The Financial Express.

Will Budget 2024 offer tax relief to boost consumption?
 

Budget 2024 is expected to reform India’s income tax structure with a focus on reducing taxes for lower income brackets to stimulate consumption. 

According to an Indian Express report, the government may prioritise tax cuts over increased welfare spending in the upcoming budget announcement in July.

Currently, income tax rates start at 5 per cent for earnings exceeding Rs 300,000 and escalate steeply to 30 per cent for incomes over Rs 15 lakh, representing a significant rise despite income growth. Officials suggest that rationalising these tax slabs could substantially boost disposable income, thereby enhancing economic activity and GST collections.

Finance Minister Sitharaman has commenced pre-budget consultations with industry groups starting June 20, following discussions with Revenue Secretary Sanjay Malhotra on June 18. The upcoming budget under Modi 3.0 aims to strike a balance between accelerating growth, controlling inflation, and financing coalition commitments.

India aims to achieve a $5-trillion economy and ‘Viksit Bharat’ status by 2047, with the Reserve Bank of India forecasting a 7.2 per cent economic growth this fiscal year, driven by rural demand and easing inflation.

India’s economic policies have received favourable responses, with Standard & Poor’s (S&P) recently upgrading the sovereign rating outlook to positive, contingent upon achieving fiscal targets. However, challenges remain in non-tax revenue generation, notwithstanding the strategic disinvestment of Air India, as reported by India Today.