What To Expect In The Budget 2024?

Last year, on 1 February 2023, i.e., on the budget day, the govt. made significant announcements such as increased spending on infrastructure, several aids for agriculture and entrepreneurs, increase in tax rebate, etc., for the FY 2023-24.

Now, the budget for the FY 2024-25 is yet to be presented. Finance Minister Nirmala Sitharaman will present the interim budget 2024-25 on February 1, 2024.

In this blog, we will discuss what to expect in the upcoming budget and past year trends.

What is Interim Budget?

An interim budget is a temporary financial plan presented by the government when the general elections are forthcoming. Compared to the regular budget, the interim budget is less comprehensive and does not introduce many policy changes.

An interim budget generally includes a review of the previous year’s budget, i.e., the government’s income and expenditure for the previous financial year and an estimate for the upcoming financial year.

What to expect in the upcoming Budget?

Finance Minister Nirmala Sitharaman will present the budget on 1 February; since it’s an interim budget before the general elections scheduled in May 2024, we are not expecting to have any major policy changes or announcements. The major focus will likely be maintaining macroeconomic stability and continuing existing schemes.

However, there are some expectations about what can be included in the Budget 2024.

Below are some key areas to watch:

1. Under section 80D, the deduction limit for medical insurance premiums can be increased from INR 25,000 to INR 50,000 in the case of individuals and from INR 50,000 to INR 75,000 in the case of senior citizens.
2. Currently, TDS deducted on property acquisitions is 1% if the value of the property exceeds INR 50 Lakhs. The government is planning to ease TDS compliance for people who wish to invest in real estate.
3. Bangalore is to be considered a metro city for the exemption of the house rent allowance for its residents, which means 50% of basic pay will be determined as HRA. As of now, Bangalore is not classified as a metro city for HRA deduction, means only 40% of basic pay is determined as HRA.
4. The government’s subsidy* bill can see a slight increase in the upcoming financial year 2024-25 because of the expansion of the central government’s free food scheme.

*If you’re not familiar with the word, Subsidy is a kind of financial aid the government provides to individuals, businesses, or institutions. It can include reductions or exemptions from taxes, loans at lower interest rates, cash transfers or grants.

5. We can also expect a new reverse charge-based mechanism to improve GST compliance. This will avoid monthly tax payment obligations by small business vendors since buyers who are large taxpayers with turnovers above INR 100 crore will directly pay the tax to the government.

A quick look at FY 2023-24 allocation of Budget.

Some of the major sectors accounted for 53% of total estimated expenditure in the previous financial year budget:

Subsidies for FY 2023-24

Expenditure on subsidies accounts for a major portion of the government’s total budget, with an amount of INR 400,000 crore.

The three major types of subsidies provided by the government were food subsidies, petrol subsidies and fertiliser subsidies, other subsidies such as assistance provided to state agencies, agricultural produce, price support schemes, etc.

Chances are likely that subsidies will remain unchanged for FY 2024-25 as well.

Disinvestment Target

Disinvestment is the process of the government reducing its ownership stake in the public sector undertakings (PSUs). It can be done through selling shares of the PSU, merging PSUs, and liquidating PSUs.

The disinvestment target of the government for FY 2023-24 was INR 51,000 crore, we can expect a decline in upcoming interim budget as the target of the previous financial year is unachieved.

Tax Regimes

We can expect the tax regimes to remain unchanged for the FY 2024-25 since last year there was a major relief in the new tax regime. And if we analyse the previous budgets where the tax structure was changed, it is highly unlikely that this year will bring any major change in the tax structure.

For your reference, have a look at the old & new tax regimes:

Old Tax Regime

New Tax Regime

Market’s reaction on the Budget Day

Budget announcement day is considered a big event for the general public and particularly for the market participants. The market’s reaction on the budget day is quite volatile, with a history of both positive and negative swings.

Different sectors react differently to the budget depending on the announcements affecting them. Ultimately, the market’s reaction on the day of the budget can be unpredictable.

It is interesting to note that the Budget Day reaction hasn’t been too extreme, with gains and losses not exceeding 2% in 8 out of the last 10 years. An evaluation of market history since 2013, which includes ten regular budgets and two interim budgets, indicates that the Union Budget has been a 50-50 show so far. In the year 2021, Sensex saw its best budget day gain since 1999 and ended 5% higher. We can say that it’s been a bit of a hit-or-miss situation.

Further, experts suggest not to take directional positions before budget announcement day as the budget can significantly impact the market movement, and if the market moves in opposite direction to your trade, that will result in significant losses.

Conclusion

After a successful FY 2023-24, leading institutions like World Bank and RBI estimated India’s growth in FY2024 -25 to be between 6.3% to 6.4%. However, global economic uncertainty and geopolitical scenarios can influence the conclusions of Budget 2024.

Given the elections, majority measures for farmers and middle-class families are probable. Also, investments in infrastructure to boost India’s manufacturing competitiveness can be one of the main agenda of the government in the upcoming budget.

Frequently Asked Questions (FAQs)

1. Who presents the budget?

Ans. Finance Minister of India.

2. Are markets more volatile near the budget?

Ans. Generally, markets are more volatile near the budget day as different investors have different expectations. However, this increased volatility cools off after the announcement of the budget.

3. Which day will the government present the budget for FY 24-25?

Ans. 1^st February, 2024.

4. What is subsidy?

Ans. A subsidy is a financial aid that the government provides to individuals, businesses, or institutions.

5. Will the budget for 2024 affect taxes?

Ans. Tax changes are possible, but major reforms are unlikely in the interim budget. However, we can expect some new tax exemptions.

Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.