As elections approach, the Indian Budget in February is anticipated to be a Vote on Account rather than a comprehensive budget. This means dramatic announcements are unlikely. However, there is a substantial wishlist that includes initiatives to simplify tax procedures and compliances, prepare for the imminent adoption of Pillar Two reforms, and bolster India's economic growth with a focus on sustainability and inclusion.
As the country approaches the Union Budget on February 1, 2024, coinciding with the general elections, it's crucial to understand the nuances of an election year budget. This budget will be the last one presented by the Modi government before the parliamentary elections in April-May 2024.
In an election year, the government presents a 'Vote on Account' rather than a full budget. This is due to the constitutional provision under Article 116, which allows the Lok Sabha to grant the government permission to spend for a part of the financial year, pending the completion of the procedure for the voting of the Demands. This means that the government is authorized to incur expenditure for a limited period until a new government presents the full budget. Any big ticket changes are generally announced in the full budget post elections.
The 'Vote on Account' typically remains in force for about four months of the fiscal year, i.e., April 1 to March 31. The interim arrangement allows the new/ incoming government the flexibility to design its own economic policies without being obligated by the previous government's full-year budget.
A key feature of a 'Vote on Account' is that it does not include new tax proposals, that are generally reserved for a full budget. Instead, it focuses on the expenditure side of the budget, ensuring continuity of government operations till the new budget is presented and approved.
Given the proximity to the elections, expectations from this budget are shaped by its interim nature, focusing on immediate fiscal needs rather than introducing broad long-term economic reforms. In the last interim budget for FY 2019-20 in India, while the overall tax structure remained unchanged there were certain specific tax rebate and standard deduction concessions.
While major announcements may be deferred until after the 2024 Lok Sabha Elections, the budget is expected to address ongoing concerns and lay the foundation for future economic growth. This strategic approach aims to balance immediate fiscal responsibilities with long-term economic objectives in a pre-election context.
For the changes proposed in budget 2019-20, please see notes below:
Tax rebate for taxpayers whose annual taxable income did not exceed Rs 5 lakh,
Standard deduction for salaried employees was raised by ₹10,000,
Increase in TDS thresholds under Section 194A for interest and 194I for rent,
Exemption from tax on notional rent of second self-occupied property,
Benefit of rollover of capital gains under section 54 increased from investment in one residential house to two residential houses subject to certain conditions.
(This article was written by Rakesh Nangia, Chairman, Nangia Andersen India; views expressed are author's own)