With the Finance Minister Nirmala Sitharaman all set to present the interim Budget 2024, ICRA has predicted a number of changes in terms of taxation, pension and insurance schemes, mutual fund schemes, among other things.This would be Nirmala Sitharaman’s sixth consecutive budget since 2019.Other than Nirmala Sitharaman , other finance ministers who have presented at least five consecutive Union Budget include Morarji Desai, P Chidambaram, Pranab Mukherjee, Manmohan Singh, Yashwant Sinha, and Arun Jaitley.Being an interim Budget , while it is said to have no major announcements as it is coinciding with the general elections year which is scheduled for early this year, ICRA summarises the following changes/ announcements expected from the Budget document.The full budget for the fiscal year 2024-25 will be presented after the formation of the new government following the general elections.Taxation In terms of taxation, ICRA said that the markets have had the demand for removal of security transaction tax (STT) for a few years now and as the GST collection went up, this demand has again gained traction.The move, it said, will attract more investors to invest in domestic equity markets.Further, it added that the company pays tax on its profit and at the same time the government levies tax on dividends in the hands of shareholders resulting in double taxation on dividends.
Thus, a relief from double taxation on dividends will be appreciated by the markets.
Pension and Insurance The government, ICRA said, may consider raising the pension floor for the unorganised sector workers under its flagship scheme, the Atal Pension Yojana (APY) as the current amount may not attract enough potential subscribers to enroll.Furthermore, senior citizens rely heavily on annuity income during retirement years.Considering the rise in medical expenses and the financial well being of senior citizens, the government may accord tax-free status to annuity income from NPS.Also, an investment of Rs 50,000 a year is unlikely to yield much pension and the limit may be enhanced to Rs 1 lakh.Also, the government may look at separating tax deduction for life insurance premium instead of clubbing it under Section 80C which will improve the penetration of insurance products in the country and encourage people to secure their family’s financial future by investing in life insurance.Also, the ICRA report said that the government may reconsider the 18 per cent Goods and Services Tax (GST) charged on health insurance policies.
Mutual Funds In terms of mutual funds, ICRA said, the government may consider addressing the difference in tax treatment between equity mutual funds and Unit linked Insurance Plan (ULIP).
Also, an equity Fund of Fund needs to be at par with equity-oriented mutual funds for taxation.
Further, it also bet on the simplification of capital gains structure by introducing a uniform holding period across domestic equities and mutual funds.Uniformity in tax treatment is expected to encourage higher compliance.However, it needs to be noted that equity investors take higher risks than other investors and hence the same needs to be taken care of accordingly.Further, the tax amendment to the Finance Bill last year created a level playing field between bank deposits and debt mutual funds.However, an investor in fixed deposits pockets assured returns irrespective of interest rate movements while a debt fund investor is exposed to not only interest rate risk, but credit risk as well in case the issuer defaults.
Also, with the removal of earlier indexation benefits, global equity funds, equity fund of funds, gold funds and hybrid funds holding less than 35 per cent in equities turned out to be tax-unfriendly and suffered collateral damage.Thus, the tax change might be revisited.Markets Markets, ICRA said, seek a more comprehensive policy on crypto currency regulation.Aregulatory framework may result in a more inclusive participation in the crypto market.Also, the stage is set for sovereign green bonds to make a comeback in the Budget as green bonds address the funding requirements for wind, power and hydropower sector.And finally, a mega capital outlay may be earmarked for energy transition and net-zero objectives.Government is expected to focus on new-age fuels — green hydrogen, ethanol, and other biofuels..
