The Union Budget 2023, to be presented by Finance Minister Nirmala Sitharaman on Feb. 1, will be the last full-year budget by the Narendra Modi government ahead of the Lok Sabha elections due in early 2024.

What Happened: HDFC Securities has listed out the Union Budget's priorities and expectations. Will the Budget contain people-centric proposals? Will the finance minister raise the exemption limit and/or standard deduction? What about the market trajectory, which has been impacted severely amid the bloodbath in shares of most of Adani Group companies? Let's take a look:

Direct taxes

Sitharaman may not make many changes other than increasing the Section 80C exemption ceiling, according to HDFC Securities analysts. This will provide middle-class people access to a little more money. The finance minister is likely to increase the limit under Section 80C — one of the most popular ways for taxpayers to decrease their tax obligations — from the present ₹1.5 lakh to ₹2.5 lakh.

The salaried class is also expecting some good news on the personal tax front and expecting that the basic exemption level will be increased from the current ₹2.5 lakh to ₹5 lakh.

The government may boost the tax exemption on home loan interest and increase the deduction cap from ₹2 lakh to ₹5 lakh.

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Also, the deduction limit under Section 80D — which includes deductions on medical insurance premiums paid by a taxpayer for them and their family members — should be enhanced to ₹1 lakh. At present, the deduction allowed is ₹25,000 in a financial year. For senior citizens, the deduction limit is ₹50,000.

Indirect taxes

Not many changes in indirect taxes are anticipated this time. After the new government is formed in July 2024, there may be many changes to indirect taxes.

However, as of now, Remission of Duties and Taxes on Export Products, or RoDTEP, will be in focus. The scheme has been in place since Jan. 1, 2021, and its sole aim is to boost exports. The budget under RoDTEP is around ₹40,000 crore. Exporters have sought a raise in this.

Other expectations are lower GST rates on appliances such as air conditioners (28% to 18%), refrigerators (28% to 18%) and fans (18% to 5%).

Lowering the excise duty rate on CNG, thus reducing the burden of high natural gas costs on the consumers, should also be a priority.

Others

Despite the ₹1 trillion interest-free loan provision for capital spending by states, there has been a large constriction of capital expenditure in most states. This, in turn, is accelerating a slowdown in growth. This fiscal policy challenge needs to be quickly addressed. The Union Budget may lay emphasis on addressing the slowing of GDP and an increase in the current account deficit.

Due to the focus shifting from revenue spending to capital investment, the overall size of the budget for the fiscal year 2024 could increase by a single-digit amount.

The markets would like Sitharaman to keep borrowings in check so that interest rates do not rise further, provide incentives on exports of goods and services to bring trade and current account deficits under control and also widen the tax net without increasing compliance requirements.

Another expectation is increasing the overall Capex in the Budget by 15-20% year-over-year.

With a slowdown in GDP growth — nominal GDP growth estimate for fiscal year 2024 could be 10.5-11% vs 16% in fiscal year 2023 — tax collection growth is likely to drop. Lowering interest rates in the economy would become necessary if the nominal GDP growth rate falls, but doing so would be difficult, at least in the short term.

The Budget may not have a significant impact on the stock market's current trajectory, but the market may keep getting affected by other factors such as global market trends, Adani Group stocks’ freefall following the allegations by Hindenburg Research against Gautam Adani, local company results, results of the US Federal Reserve meeting on Feb. 1 and the Reserve Bank of India Monetary Policy Committee meeting on Feb. 8.

Other analyst expectations include increasing funding for rural spending, restoring priority sector status to eligible gold loans — including microloans, loans to farmers and loans to microbusinesses — promoting tourism though sustainable schemes and providing incentives and tax breaks to scale up the EV charging infrastructure.

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