Union Budget 2024-25: Key Highlights and Impacts

“In the last 10 years, 25 crore people have come out of poverty. This budget is for the empowerment of the new middle class. The youth will get unlimited opportunities from this budget. Education and skill will get a new scale from this budget. This budget will give power to the new middle class…This budget will help women, small businessmen, MSMEs…”

says Prime Minister Narendra Modi

TABLE OF CONTENTS:

Introduction

After the interim budget this year and the newly formed coalition government, the Union budget 2024-25 is finally out amidst the monsoon season, lets understand the 1st full budget of Modi 3.0 and explore what it has in it for us! 🌟

Apart from the fact that FM Nirmala Sitharaman is going to present record 7th budget, she will need to detail strategies to achieve India’s aim of becoming a $5 trillion economy and the world’s third-largest economy In terms of economic policy, a commitment made by Prime Minister Narendra Modi ahead of the elections. The Budget will also need to address the needs of the agriculture sector, create jobs, sustain public spending, and boost tax revenues.

Key Highlights of Budget 2024-25

Major Announcements

1. FM Sitharaman keeps FY25 capex target unchanged at Rs 11.11 lakh crore in Budget 2024.
2. FM cuts fiscal deficit target to 4.9% for FY25 in Budget, sets it further lower at 4.5% for next year.
3. The gross market borrowings have been revised downward to ₹14.01 lakh crore from ₹14.13 lakh crore estimated in the interim Budget.
4. Budget size has increased to 48.21 lack crore.

Total revenue and expenditure

• Receipts for FY25 seen at ₹32.07 lakh crore.
• Expenditure for FY25 seen at ₹48.21 lakh crore.

Fiscal deficit targets

• The fiscal deficit target has been estimated at 4.9% of GDP.

Priorities for Viksit Bharat as outlined in the Union Budget

• Priority 1: Productivity and resilience in Agriculture
• Priority 2: Employment & Skilling
• Priority 3: Inclusive Human Resource Development and Social Justice
• Priority 4: Manufacturing & Services
• Priority 5: Urban Development
• Priority 6: Energy Security
• Priority 7: Infrastructure
• Priority 8: Innovation, Research & Development
• Priority 9: Next Generation Reforms

Impact on Different Stakeholders

Individuals

Personal Income Tax

• Standard Deduction: Increased to ₹75,000 crore under the new tax regime.
• Changes in tax slabs
  • Revised tax slabs:
    • 0-3L: nil
    • 3-7L: 5%
    • 7-10L: 10%
    • 10-12L: 15%
    • 12-15L: 20%
    • 15L+: 30%
• The Family Pension Deduction has been increased from ₹15,000 to ₹25,000, providing additional relief to pensioners receiving family pensions.
• Tax Changes: Revised tax slabs and increased standard deduction will provide significant tax savings Up to ₹17,500 annually, enhancing disposable income and spending power.

Housing Initiatives: Increased allocation for PM Awas Yojana will make housing more affordable for urban poor and middle-class families.

Businesses

• Credit Support: Enhanced scope for mandatory onboarding in TReDS(Trade Receivables Discounting System) and a new assessment model for MSME(Micro, Small, and Medium Enterprises) credit.
• Mudra Loans: Increased limit to ₹20 lakh under the ‘Tarun’ category to support MSME units.
• Customs Duty Revisions: Reduced customs duty on essential items like mobile phone components, gold, silver, shrimp feed, and solar panel manufacturing inputs.
• Simplification of Taxes: Introduction of simpler tax regimes for various sectors, including angel tax abolishment and reduced corporate tax rates for foreign companies.

Sector-wise Impact

Agriculture

• Promotion of Vegetable Supply Chains: Initiatives to support Farmer Producer Organizations (FPOs), cooperatives, and start-ups to enhance vegetable production, storage, and marketing.
• Release of New Crop Varieties: Introduction of 109 new high-yielding and climate-resilient varieties of 32 field and horticulture crops.
• National Cooperation Policy: Focus on the systematic development of the cooperative sector.
• Natural Farming: Aiming to bring 1 crore farmers into natural farming with support for certification and branding within the next two years.
• Digital Public Infrastructure for Agriculture: Implementation of digital crop surveys and issuance of Jan Samarth-based Kisan Credit Cards to farmers.

Employment and Skilling

• Women in Workforce: Setting up of working women hostels and establishing creches to facilitate higher participation of women in the workforce.
• Youth Employment Schemes: Multiple schemes to incentivize employment in formal sectors, with a special focus on first-time employees and job creation in manufacturing.
• Skilling Programs: Training 20 lakh youth over five years and upgrading 1,000 Industrial Training Institutes to align with industry needs.

Education and Social Justice

• Higher Education Loans: Financial support for loans up to ₹10 lakh for higher education in domestic institutions, with direct e-vouchers to 1 lakh students annually.
• Social Welfare: Allocation of more than ₹3 lakh crore for schemes benefiting women and girls, and improving the socio-economic conditions of tribal communities through Pradhan Mantri Janjatiya Unnat Gram Abhiyan.

Energy and Environment

• Renewable Energy: Financial support for shifting to cleaner forms of energy and investment-grade energy audits in industrial clusters.
• Nuclear Energy: the Indian government aims to partner with the private sector for research, development and manufacturing of small nuclear reactors to set up Bharat Small Reactors.

Infrastructure

• Significant Investments: Provision of ₹11,11,111 crore for infrastructure, including the launch of PMGSY Phase IV to improve rural connectivity.
• Urban Development: Initiatives for water supply, sewage treatment, solid waste management, and the development of 100 weekly ‘haats’ or street food hubs in select cities.
• Housing Needs: Addressing housing needs of 1 crore urban poor and middle-class families with an investment of ₹10 lakh crore under PM Awas Yojana Urban 2.0.

Innovation and R&D

• Research and Development Fund: Operationalization of the Anusandhan National Research Fund and initiatives for private sector-driven research and innovation with a financing pool of ₹1 lakh crore.
• Space Economy: Establishment of a venture capital fund of ₹1,000 crore to boost the space sector.

Impact on the Stock Market

• In the Union Budget 2024-25, Finance Minister Nirmala Sitharaman announced significant changes to the capital gains tax structure:
  • The long-term capital gains tax (LTCG) has been increased from 10% to 12.5% on all financial and non-financial assets.
  • Additionally, the short-term capital gains tax (STCG) on certain assets has been raised from 15% to 20%.
  • The long-term capital gains tax exemption limit has been raised from ₹1 lakh to ₹ 1.25 lakh per year, in a bid to appease the lower and middle-income classes.
  • These changes caused to stock market to crash right after the budget was announced. Prominent analysts hadn’t anticipated this change and expected the FM to keep them unchanged, causing unsettlement among investors. additionally, the 0.1% increase in STT tax on every equity sale or purchase further contributed to the crash.

Capital gains tax in India is governed by the Income Tax Act, 1961, and is levied on the profit or gain arising from the sale of a ‘capital asset.’

Vaibhav Porwal, Co-founder of Dezerv, commented on the rise in capital gains tax, saying, “The recent changes in the union budget, particularly the increase in STCG and LTCG tax signal a significant shift. While the market’s initial reaction may seem bearish, we believe these changes will ultimately foster a more stable and mature investment environment.
“The widening gap between STCG and LTCG rates is a clear incentive for longer-term holdings. This move is also a step towards standardising taxation across various asset classes, potentially simplifying the investment decision-making process for many,” added Porwal.

• Market Reactions: The stock markets reacted negatively to the changes announced in the Budget. Both Sensex and Nifty indices witnessed a significant drop. Shares of major companies like Tata Motors, Tata Steel, Power Grid, Larsen and Toubro, and SBI were among the top underperformers.

• Sectors likely to see significant gains:
  • Infrastructure,
  • housing,
  • renewable energy

• Long-term Outlook: Projected to be Favorable due to growth-oriented spending and tax reforms.

Economic Implications

Inflation and Cost of Living

• Increased public spending and tax savings for individuals are expected to boost consumption, potentially impacting inflation rates.

Economic Growth Projections

• Continued investment in infrastructure and housing will drive economic growth, with positive GDP growth projections.

Employment Generation and Job Market Impacts

• During this Budget a lot of emphasis is put on skill development and industrial experience along with Infrastructure projects and housing initiatives will create job opportunities, improving employment rates and economic stability.

Summary of the key points

That sums up the budget for, now the worlds fastest growing economy, stay tuned for future posts! 😊

useful links:

budget at a glance for FY24-25:

link to budget at a glance for previous year (FY23-24):

https://www.indiabudget.gov.in/budget2023-24/doc/Budget_at_Glance/budget_at_a_glance.pdf

Few memes;)