The Union Budget 2022 rightly outlined the need for prudence in the face of the pandemic, global headwinds, slowing global growth, geo-political tensions, battered financial markets and contracted global trade. The Budget is rightly focused on the rural and infrastructure sectors, at a time when the rural economy is in a bad shape. Nirmala Sitharaman did a wonderful job of prioritising resources towards vulnerable sections, rural areas, the MSME sector and social and physical infrastructure creation.
The finance minister laid out the total budgeted expenditure for 2022-23 at `39.45 lakh crore. The fiscal deficit in 2022-23 has been estimated at 6.4% of GDP, which is consistent with the broad path of fiscal consolidation announced last year to reach a fiscal deficit level of below 4.5% by 2025-26.
High relief was given to such taxpayers where there have been omissions or mistakes in correctly estimating their income for tax payment; they can now file an updated return on payment of additional tax. This updated return can be filed within two years from the end of the relevant assessment year. This will lead to reduction in litigation.
Rationalisation of surcharge has been announced - the rate of long-term capital gains varies between 10 to 20% depending upon the type or class of assets. The mentioned rate of long-term capital gain tax increases by applicable surcharge which is chargeable at 37% in case of an individual having capital gains of more than `5 crore during the year. For capital gains more than `2 crore but up to `5 crore, the surcharge rate is 25%. Further, in the case of companies, the maximum applicable rate of surcharge is 12% where such capital gains are more than `10 crore during the year. Now, to promote long-term investments in equity of start-up, the rate of surcharge has been capped at 15%, irrespective of the amount of long-term capital gains. This is beneficial for individual investors who are holding shares for more than 12 months and selling them thereafter, thus treating gains on the sale of such shares as long-term capital gains. Further, the beneficial rate of the surcharge shall also apply to an Association of Persons (AOP). This will be a big beneficiary for start-ups and unicorns and for those who hold and invest in unlisted shares.
With the focus clearly on rural India, it was no surprise that several announcements were made towards promoting agriculture, like procurement of wheat and rice, promotion of chemical-free natural farming, support for millet products, scheme to increase domestic production of oilseeds, delivery of digital and hi-tech services to farmers, use of ‘Kisan Drones’, revision of syllabus of agricultural universities, fund to finance start-ups for agriculture and rural enterprise relevant for farm produce value chain. These steps will not only benefit farmers but would also in the long run, generate employment. Moreover, it will indirectly help in somewhat reducing food inflation.
In order to uplift the quality of life in rural India, “Har Ghar, Nal Se Jal” scheme got an allocation of ` 60,000 crore with an aim to cover 3.8 crore households in 2022-23. Apart from which `48,000 crore have been allocated towards completion of 80 lakh houses for the identified eligible beneficiaries of PM Awas Yojana.
Recognizing the hardships faced by the MSME sector, the finance minister announced steps towards credit facilitation, skilling, and recruitment. In addition to that, the “Emergency Credit Line Guarantee Scheme (ECLGS)” has been extended up to March 2023.
Appreciating the emergence of start-ups and the role of venture capital and private equity in facilitating one of the largest start-up and growth ecosystem, the finance minister recommended setting up of an expert committee to examine and suggest appropriate measures. Moreover, tax incentives have been extended by one year, now eligible start-ups established before 31.3.2023 has been provided a tax incentive for three consecutive years out of ten years from incorporation. Previously the cut-off date was 31.3.2022.
In terms of equity markets, no tinkering has been done with the long-term capital gains tax which has been haunting market participants in the recent past. Overall, the Union Budget neither had surprises nor any big announcements but had the necessary caution and intent to revive growth in the economy. However, at a time when the global economy is in doldrums and with a focus on four pillars of development — inclusive development, productivity enhancement, energy transition and climate action — with a blueprint of economy from India at 75 to India at 100 — this probably is the best that the FM could have delivered.