On February 1 (Wednesday) at 11 a.m., Finance Minister Nirmala Sitharaman will announce the Union Budget 2023. Since the global economy is struggling under recessionary pressures, all sectors, but especially individual taxpayers, have high expectations for the Budget 2023. Preeti Sharma, Partner/Global Employer Services, Tax & Regulatory Services - BDO India, said the Union Budget details the projected income and expenditure of the Government for a particular year. Any policy changes that may have an impact on the Government’s revenue or expenditure directly/ indirectly have an impact on a common-man’s household budget. Let’s understand how:
1. Tax breaks or exemptions
One change expected from the Union Budget 2023 is the change in the current tax slab rates applicable to individual taxpayers and increase in the limit of basic income exemption threshold. This change may lead to fall in the net revenue collection of the Government from income-tax if not coupled with other initiatives to increase the tax base. However, from an individual taxpayer’s perspective, it means lower tax outflow and hence increased disposable income.
Let’s understand this with the help of an illustration:
An individual is the sole earning member in a household and is earning INR 1.2mn per annum. The Government introduces the following changes in the Union Budget:
Increases the slab limit from INR 0.25mn to INR 0.5mn. Post the update, there will be no income tax in the hands of an individual for an income till INR 0.5mn.
Decreases the rate on tax on income between INR 0.5mn to INR 1mn from the current 20% to 10%.
Let’s understand how that will affect the Household Budget:
For the purpose of this illustration and simplicity of calculation we have assumed and calculated tax under the Old Tax regime only. We have also not assumed any deductions or exemptions as available under the Income Tax Law.
2. Tweaking GST Rates
Various GST rates were introduced by the Government with an objective to tax luxury items at higher rates and essential items at lower rates. Most amendments introduced in the GST regime have been aimed towards achieving this objective.
These GST rates could be further refined to lower the taxation burden on essential items.
Further, the increase in GST rates for luxury items, may negatively impact the budgets of households to buy those items. Some re-allocation may be required to compensate for the additional cost.
Let’s understand this:
Continuing with our example above, an individual has a disposable income of 10,27,500 per annum.
Currently, the following expenditures are being paid as per the household budget:
INR 300,000 per annum on House rent.
INR 105,000 per annum on Food and groceries in a year.
INR 31,500 per annum on medicine and medical treatments.
INR 52,500 per annum on fuel cost.
INR 21,000 per annum on utilities like electricity, phone, gas.
Assuming that apart from House rent, all other expenditures fall under the ambit of GST and GST at 5% is being levied on them.
Under the Budget, the Government reduces GST rates on the above items from 5% to 3%. Here’s how it could affect the Household Budget:
3. Allocation towards subsidies
Prices for cooking gas, electricity and fuel have been on the rise, majorly because of the rising costs worldwide but also owing to reduced subsidies by the Government on these products. Along with these, there are many other goods that are provided by the Government at subsidised rates. Any increase in the subsidies by the Government towards such goods may reduce the net cost for such goods in the hands of the household, leading to savings. The reverse also holds true.
To provide relief post COVID-19 and increase the spending power of individuals against the looming recessionary trends, the Government may allocate some funds towards subsidies.
4. Funding of Individual Welfare schemes such as Government Financial Inclusion Schemes and Healthcare
Over the years, the Government has introduced various schemes like Pradhan Mantri Jan Dhan Yojana, Atal Pension Yojana, Pradhan Mantri Suraksha Bima Yojana etc. to lift the economically weaker sections of society. These schemes are designed with an aim to provide people financial services and products at economical prices.
Cost of Healthcare has increased substantially over the years, the Government allocates funds towards various schemes providing healthcare to economically weaker section at lower costs. To fund these costs, the Government has to allocate some part of its budget towards these schemes.
An increased allocation towards these financial inclusion and healthcare schemes will lead to reduction in expenditure by the households towards these pre-defined services.
5. Allocation of funds towards Government Expenditure
Increasing capital expenditures is the most efficient means of creating jobs for the Government. As a result of these expenditures, new jobs will be created and the unemployment rate will reduced.
This is one way of putting money in the hands of an individual and thus increasing a household’s revenue.
Balancing income and expenditure to manage fiscal deficit is a mammoth task for any Government. While doing this, the Government always considers its impact on common man's household budget. The expectation from this Budget is soaring high and the Nation is confident that the finance minister will manage this task efficiently.