Finance Minister Nirmala Sitharaman will present the Union Budget on February 1, 2024, at Lok Sabha. Since it's an election year, an interim budget is anticipated instead of a full one. Alongside, the Ministry of Finance (MoF) releases a crucial report to Parliament just before the budget presentation—known as the Economic Survey of India. This survey serves as an annual summary, offering a comprehensive view of India's economy in the preceding year.
Before we delve into the details of the Economic Survey of India, let's first understand what constitutes an interim budget and how it differs from a Union Budget.
What's an interim budget?
An interim budget is what the government puts forward in Parliament when there's not enough time to show a full budget or when elections are getting close. Normally, the new government that's coming in would make the whole budget.
A full budget lets the government spend money until the financial year ends on March 31st. But if they can't do a full budget by then, they need permission from Parliament to spend money in the new year until they pass a new budget. So, the interim budget helps cover the government's basic expenses before the Parliament talks about and agrees on the whole year's budget.
How's an interim budget, unlike a regular one?
An interim budget, similar to a regular budget, involves estimating expenses for the entire year. However, it's presented when elections are near, serving as a transition plan for the government's final months in power. Although it covers costs for the whole year, it focuses mainly on essential expenses until the elections. This budget is less likely to introduce major changes or new plans, as the incoming government will have the power to agree on or modify these estimates in the new budget.
The government can adjust tax rules in an interim budget, but usually, no significant tax changes or fresh schemes are introduced, considering the short period in power. Additionally, an annual budget typically comprises two parts: a report on the previous year's financials and proposed income and expenses for the upcoming year. In the case of an interim budget, while it includes the previous year's finances, it mainly documents the necessary expenses until the elections, following guidelines set by the Election Commission to prevent unfair influence on voters.
Economic Survey: What is included and who prepares it?
The Economic Survey comes out on January 31, a day before the Union Budget, and is presented by the Finance Minister in Parliament. This yearly report from the Finance Ministry tells about the country's financial health. It's like a detailed review of how well the country's economy did in the previous year. The survey shares information about how the economy performed and is a big part of what the government uses to plan the budget.
The Economic Survey has two main sections. The first talks about how India's economy is doing overall, and the second part goes into specific details about important economic markers. The report also includes how government plans and programs are working and gives an idea about how much money is being spent in different areas. It covers important economic signs and trends in different parts of the economy. Its main goal is to understand how the country's economy is doing and what direction it might take in the next year. The survey is like a guidebook for understanding the government's financial policies and their effects to understand how different areas like farming, services, industries, and money management are doing.
The Economic Survey is put together by the Economic Division of the Finance Ministry. It reflects the views of the top economic advisor. Before it's published, the Finance Minister has to give it the green light. Then, the Finance Minister presents it in Parliament, and afterward, the Chief Economic Adviser gives a summary of the current year's finances.
What were the key highlights of Union Budget 2023?
The 2023 Union Budget brought significant changes to income tax policies. FM Nirmala Sitharaman raised the income-tax rebate threshold from Rs 5 lakh to Rs 7 lakh for those choosing the new direct tax system. The basic exemption limit also saw an increase to Rs 3 lakh from the earlier Rs 2.5 lakh.
Additionally, a deduction of Rs 15,000 for family pension was introduced. Salaried individuals, pensioners, and family pensioners benefited from the new standard deduction clause under the tax regime. The old regime previously offered a standard deduction of Rs 50,000 to salaried employees and pensioners.
In a move towards simplification, the income tax slabs were reduced to six from seven.
Here's a breakdown of the new structure:
- No tax for income up to Rs 3 lakh.
- 5% tax for income over Rs 3 lakh up to Rs 6 lakh.
- 10% tax for income over Rs 6 lakh up to Rs 9 lakh.
- 15% tax for income over Rs 9 lakh to Rs 12 lakh.
- 20% tax for income over Rs 12 lakh to Rs 15 lakh.
- 30% tax for income above Rs 15 lakh.
What to anticipate in the interim Budget 2024?
India's ongoing reforms in the direct tax policy aim to enhance efficiency and transparency. There have been noteworthy changes, such as reducing corporate tax rates, introducing favourable tax schemes, and eliminating the minimum alternate tax, all geared toward attracting investments and cultivating a more business-friendly tax environment. Despite efforts to streamline tax rates and encourage investments, the tax policy remains intricate due to legal decisions and legislative alterations.
The current Indian tax landscape offers ample opportunities for a more investor-friendly system. As the government prepares to unveil the interim Budget for the fiscal year 2024-25 on February 1, 2024, taxpayers are hopeful for announcements such as lowered corporate tax rates for new manufacturing ventures, incentives for exports via tax holidays, and support for research and development with weighted deductions.
The interim budget for the fiscal year 2024-25 will be presented after the formation of the new government subsequent to the general elections.