Union Budget 2024-25 Analysis: Tax implications, Sector Impact

The 2024-25 Budget, rooted in nine transformative priorities, serves as a strategic plan for growth across diverse sectors. Building on the initiatives introduced in the interim budget, it outlines a vision for 'Viksit Bharat' and enhances emphasis on employment, business facilitation, tourism, and rural infrastructure while upholding fiscal discipline.

Fiscal Discipline and Long-term Benefits

This budget marks a commitment to maintaining fiscal discipline by setting a fiscal deficit target of 4.9% of GDP for FY25, with a further reduction to 4.5% by FY26. While the immediate impact may be subtle, this approach is poised to offer long-term benefits, potentially enhancing India’s sovereign ratings by global agencies.

Positive Developments: Strengthening Infrastructure

The budget allocates a significant Rs 11.1 lakh crore for capital expenditures aimed at improving rural roads and providing state resources with long-term, interest-free loans. These measures are expected to improve connectivity and increase agricultural incomes, while also bolstering the transport and logistics sectors.

Furthermore, the Finance Minister has skilfully navigated political interests by supporting critical initiatives in Andhra Pradesh and Bihar without relying heavily on freebies. A notable Rs 26,000 crore has been designated for highway developments in Bihar, alongside a Rs 15,000 crore allocation to support the development of Amaravati, the new capital of Andhra Pradesh.

Empowering Farmers

The government has earmarked Rs 1.52 lakh crore for agriculture and related sectors to increase output and encourage natural farming. Over the next two years, one crore farmers will transition to natural farming with government support for certification and brand building.

MSME Support

The budget heavily supports Micro, Small, and Medium Enterprises (MSMEs) by abolishing the angel tax. This is expected to invigorate the business environment significantly. Additionally, the increase in Mudra Loan limits under the 'Tarun' category to Rs 20 lakh is a welcome enhancement.

Enhancing Irrigation and Flood Mitigation

The budget earmarks Rs 11,500 crore for projects like the Kosi-Mechi intra-state link, along with funding for 20 ongoing and new schemes, enhancing the nation's irrigation infrastructure and flood response capabilities.

Housing and Urban Development

The housing sector gets a massive boost too, with Rs 10 lakh crore allocated under the PM Awas Yojana Urban 2.0. This funding is targeted to construct one crore affordable homes over the next five years, addressing the urban housing shortage and promoting job growth in construction and related industries.

Advancing Green Initiatives

The Pradhan Mantri-Surya Ghar Muft Bijli Yojana is set to provide free solar electricity up to 300 units per month to a million homes, reinforcing India's commitment to sustainable energy. Other initiatives include advancements in nuclear and thermal power technologies.

Boosting Tourism and Cultural Heritage

Significant investments in developing tourist sites like the Vishnupad Temple Corridor and reviving Nalanda University aim to elevate these locations to world-class tourist destinations, promoting cultural heritage and boosting local economies.

Employment and Skilling Initiatives

The budget includes several initiatives to boost employment and skill development, such as financial support for education loans, upgrading Industrial Training Institutes (ITIs), and subsidies for employer contributions to the Employees' Provident Fund Organization (EPFO).

The Negative Aspects: Tax Reforms

The budget introduces increases in Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) taxes, which could dampen market enthusiasm. The 5% rise in STCG taxes is particularly concerning as it could significantly sour investor sentiment.

Additionally, the hike in the Securities Transaction Tax (STT) on Futures & Options (F&O) starting October 1, 2024, despite being offset by a reduction in exchange turnover charges, might still affect market participants variably. The adjustments in personal income tax rates are limited to the new regime and are marginal.

Real Estate Sector Reactions

Real estate stocks may face initial pressure as the Budget removes indexation benefits for calculating long-term capital gains tax. The new uniform tax rate is 12.5%, down from 20%, but lacks indexation, which usually lowers taxable gains by adjusting the purchase price for inflation. Without this benefit, taxes on real estate sales may increase due to higher calculated gains.

Defense Spending Adjustments

FM has announced a defense budget of Rs 4.54 lakh crore, a decrease from the Rs 6.21 lakh crore projected in the interim budget. This reduction may strain the defense sector in the short term but is intended to align with broader fiscal goals.

Conclusion: Balancing Growth and Prudence

In summary, the 2024-25 Budget adeptly balances growth-driving initiatives with fiscal prudence. By focusing on infrastructure, employment, and MSMEs, the government lays a solid foundation for sustainable growth over the next five years, ensuring a balanced approach that accommodates both political interests and economic imperatives.

Explore our detailed Budget Commentary for in-depth insights into the Budget.

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