India’s union budget expected to focus on employment generation

The India’s Union Budget is expected to focus on employment generation, increase in limits for basic tax exemption, standard deduction, medical expenses, rationalisation of tax rates and certain social security investments.

Currently, Section 16(1A) of the IT Act provides for a standard deduction of Rs50,000 from the salary income of a taxpayer. This deduction was enhanced from Rs40,000 to 50,000 by the Finance Act 2019 and has not been increased since then.

However, considering the rising inflation and cost of living, there is a need to increase such standard deduction for the salaried personnel from Rs 50,000 to Rs60,000 in case there is no increase in the basic exemption limit, said Suresh Surana, Founder - RSM India.

Currently, section 80TTA provides deduction up to Rs10,000 p.a. only with respect to the interest from savings bank accounts with banks/co-operative society/post office.

However, for the purpose of enabling majority of taxpayers to avail this tax benefit, the existing scope of the said section needs to be expanded in order to cover other types of interest such as interest on bank/post office term deposits, recurring deposit etc.

Moreover, such threshold limit of Rs10,000 also needs to be enhanced to Rs 20,000 as there was no change in the limit since its introduction by Finance Act 2012, Surana added.

There are numerous exemptions available with negligible upper limits such as Children Education Allowance (Rs100 pm per child), Children Hostel Expenditure Allowance (Rs 300 pm per child).

The limit with respect to such deductions is not in consonance with the present education cost and needs to be adjusted for inflation and accordingly, enhanced. Further, the exemption limit of Rs1,500 u/s 10(32) applicable at the time of clubbing of minor’s income under section 64(1A) was last revised in 1993 and thus, an upper revision in the same is long overdue. Such exemption limit may be hiked to Rs15,000 considering the inflation in last 28 years. It may be worthwhile to consolidate all deductions pertaining to the children in one single consolidated deduction of Rs 20,000 per child, Surana added.

The threshold limit of Rs 10,000 for payment of advance tax was last amended by Finance Act, 2009.

Considering the inflation in the economy over the last 12 years as well as reducing compliance burden, there is a need to increase the threshold limit from the present Rs 10,000 to Rs 30,000.

The Union Budget FY23’s proposals will determine the trajectory of the Indian equities markets during the coming week.

Besides, global cues such as the Russia-Ukraine conflict along with domestic quarterly earning results and flow directions of foreign funds will impact investors’ sentiments.

Furthermore, market participants are expected to track macro-data such as the Index of ECI (eight core industries), fiscal deficit numbers and the final figures for FY21 GDP, which will be released during the trade week starting January 31.

Analysts opined that an upswing might be in store due to attractive valuations and absence of any pre-budget rally.

“The coming week will continue to be volatile with the Union Budget to be presented on Tuesday. 16,998- 17,374 could be the band in the near term while this band could widen on and post the Budget day next week,” Deepak Jasani, Head of Retail Research, HDFC Securities told IANS.

“Whether the FPI selling halts or not will depend on their views on global equities and whether the Indian Budget is exciting enough for them to reverse their stand on India.”

Till now in January 2022, the FIIs have sold over Rs 30,000 crore worth of equities due to various global factors including US Fed’s plans to tighten its monetary policy.

Further, Jasani noted that sectorally banks, PSUs, auto, oil and gas and power indices look better than others suggesting some expectation buildup in these ahead of the budget.

Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services, said: “Union Budget on February 1 and the Russia-Ukraine conflict would keep the market volatility high in the coming week as well. Expectations are running high from the government to present a progressive budget which can revive economic growth.

“However, given the various state elections, the risk of a populist budget cannot be ruled out completely. Capital goods, infra, housing, real estate, PSU banks amongst others are some of the sectors that would remain in focus ahead of the budget.”

Additionally, Vinod Nair, Head of Research at Geojit Financial Services said: “The domestic trend will be muted in the short-term considering budget and state elections outcome.

“In the coming week, the release of PMI data for January will be another key domestic data point that the investors should watch.”

In addition, the week ahead will witness the release of Q3FY22 corporate results from DLF, Exide, India Hotels, Adani Ports & Special Economic Zone and Bharat Petroleum Corporation amongst others.

Indias Union Budget FY23 is likely to set a higher divestment target for the coming fiscal with more focus being set on the National Monetisation Pipeline (NMP).