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Why Budget 2024 can afford to give middle-class Indians a bit more, 5 reasons

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On July 23, India’s Finance Minister Nirmala Sitharaman will become the first person to present seven consecutive Union Budgets, surpassing the previous record held by Morarji Desai, who presented six during 1959-64. Sitharaman’s budget is being viewed with a lot of positive anticipation especially by the burgeoning middle-class population of India. They expect an income tax slab restructuring among other things.

President Droupadi Murmu in her address to the joint session of Parliament recently hinted about what to expect. Describing the upcoming Union Budget as “historic”, Murmu said it would be aimed at “economic” and “social” reforms. This has heightened expectations across the board. 

While experts suggest that Murmu’s statement indicates upcoming major reforms, some believe middle-class taxpayers might receive positive news this month. But can the government afford to offer tax benefits or relief to small taxpayers? Here are five compelling reasons why it can:

Record RBI dividend boosts government funds

The Reserve Bank of India (RBI) has announced a record dividend of Rs 2.1 lakh crore for FY24, significantly exceeding the government’s expectations. This windfall, primarily from the central bank’s foreign investments, provides the government with increased fiscal space. As a result, the need for borrowing is reduced, allowing more room for potential tax relief.

Finance Secretary TV Somanathan said, “The higher dividend is welcome, of course. It exceeds our estimate by 0.2-0.3 per cent of GDP.” In the interim budget, the government had factored in receipts of Rs 1.05 lakh crore under dividends and profits, but the actual dividend received is more than double that amount. This substantial inflow into government coffers strengthens the fiscal position, enabling the consideration of tax benefits for small taxpayers.

Better-than-expected direct tax collection

India’s net direct tax collections have surged by 17.7 per cent to Rs 19.58 lakh crore in FY24, surpassing both the initial target of Rs 18.23 lakh crore and the revised estimate of Rs 19.45 lakh crore. This increase is driven by significant growth in personal income tax, which has elevated its share to 53.3 per cent from 50.06 per cent previously. Corporate tax contributions have also grown, though at a slower rate, reflecting improved business profitability.

Analysts say that continued growth in direct tax collections signifies macro-economic buoyancy, which is reassuring from the standpoint of fiscal discipline. This should allow the incoming administration to advance policy reforms, focusing on improving taxpayer services.”

Record-high GST collections

GST collections have reached unprecedented levels, with the gross collection in June 2024 amounting to Rs 1.74 lakh crore, an eight per cent increase from the previous year. The average collections for the first quarter of FY24 (April-June) stood at Rs 1.86 lakh crore, the highest since GST was introduced in 2017. The robust collections reflect a buoyant economy and improved compliance.

Despite the Ministry of Finance discontinuing monthly press releases on GST data over perceived public resentment in the view of expectation that higher tax collections would lead to greater tax rebates, the figures indicate a strong revenue stream. The growth in gross GST collections can also be attributed to the widening tax base and greater compliance by both the corporate and from the government officials, rather than an increased tax burden.

Reduced fiscal deficit

India’s fiscal deficit for FY24 stood at Rs 16.54 lakh crore, or 5.6 per cent of GDP, lower than the revised estimate of 5.8 per cent. The centre’s net tax receipts for FY24 were higher than projected at Rs 23.27 lakh crore, achieving 100.1 per cent of the year’s target. Total expenditure was Rs 44.43 lakh crore, or 99 per cent of the targeted amount, reflecting fiscal prudence.

The reduced fiscal deficit, combined with higher-than-expected tax receipts and controlled expenditure, provides the government with more leeway to consider tax relief measures. Finance Minister Nirmala Sitharaman has set a fiscal deficit target of 5.1 per cent for the next fiscal year, aiming for a level below 4.5 per cent of GDP by 2025-26.

Strong economic growth prospects

India’s economy clocked a growth rate of eight per cent in FY24, and it is estimated to grow at seven per cent in the current fiscal year. This robust growth outlook is driven by solid performances in manufacturing, electricity, and construction sectors, as well as strong government expenditure and domestic consumption.

Chief Economic Adviser V Anantha Nageswaran has said that maintaining a seven per cent growth rate or higher for the fourth consecutive year in FY25 depends on favourable monsoon conditions. Despite potential geopolitical risks, he expects retail inflation to remain within the Reserve Bank of India’s target range of two-to-six per cent in FY25.

With the economy remaining the world’s fastest-growing major economy, the government’s strong revenue position and controlled fiscal deficit, there is a solid foundation to provide tax benefits or relief to middle-class taxpayers in the upcoming budget.

Source: Abp News

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