The Union Budget is announced on the first day of February every year and is a blueprint of the government’s revenue and expenditure for the next fiscal year (April 1, 2022- March 31, 2023). What is interesting about the Union Budget 2022 is that it has been announced immediately before the upcoming Assembly elections, and are, therefore, drafted in a subtle and balanced way.
This year, the finance minister concentrated on three major aspects, namely:
- Amrit Kal- India’s run-up to becoming a giant in every industry by the next 25 years;
- Production Linked Incentives (PLI)- A scheme under the ‘Make in India’ movement wherein the government will incentivize industries producing goods in India;
- Public-Private Partnerships (PPP)- Represents the collaboration of private industries and government for future projects.
Union Budget Highlights
- Capex raised by 35.4 per cent
In simple terms, capex means the intention or ability of an organization to spend on fixed assets. This spending could be in terms of buying, maintaining, or improving such assets.
The Union Budget has expanded the capex by 35.4%, which is an increase to Rs 7.5 lakh crore from an earlier Rs 5.54 lakh crore.
Impact: Focusing on creating more fixed assets (infrastructure, equipment, etc.) would help create more job opportunities, and also pull in more private players to invest in such projects (thereby fulfilling the concept of PPP).
Not taking a political stand against the farmers’ protests, the government announced the procurement of wheat and paddy at Minimum Support Price (MSP) directly from the farmers. The government intends to spend Rs 2.37 lakh crore for such procurements.
Further, the Budget mentions the use of ‘Agri-Tech’ such as Kisan Drones for crop assessment, spraying insecticides, land records, etc. The Budget also lays emphasis on the use of zero budget natural farming, discouraging the use of chemical-based agricultural processes.
Impact: While the main reason for re-emphasizing the MSP scheme could be to gain back the lost trust of the farmers, the AgriTech scheme intends to bring about a new wave of technology in the agricultural sector. The zero-budget natural farming, while looking for goods on the outside, still lingers on the edge. Whether this measure will be adopted by farmers all across, or will the scheme become a deterrent with low yields is yet to be seen.
A major announcement came in for the telecom sector with the finance minister announcing the auction of 5G spectrum in 2022.
Impact: This is a major announcement since it will push India towards joining other countries in rolling out 5G services across circles.
Another important announcement was towards the research and development for technology upgradation. Finances for the R&D will be provided for from the Universal Service Obligation (USO) Fund.
Impact: With the Budget allocating 5% of the USO Fund towards R&D, it’ll help devise strategies to provide internet and other technological benefits to the rural, semi-urban, and remote areas of the country.
In a first, the Union Budget discusses the battery swapping policy under the FAME Scheme. The government’s aim is to incentivize and subsidize the investments in electric vehicles by Rs 10 thousand crores.
Impact: More concentration on this sector would help make electric vehicles more feasible for buyers.
Keeping energy transition and climate action a priority, the government aims to provide enhanced financial support to set up Distributed Renewable Energy projects in villages under the Vibrant Village Programme.
Along with this, there is also a discussion regarding Green Bonds which will be used specifically to finance projects that’ll help the country move towards carbon neutrality.
Further, an additional Rs 19,500 crore in the form of Production Linked Incentives (PLI) will be provided to those who participate in the production of solar energy modules.
Impact: While the PLI scheme for solar modules is a great step towards achieving the 280 GW installed solar capacity by 2030, Green Bonds too will pave the way towards the use of environment-friendly processes for production and other industrial applications. Solar and electrical energy will cover a major part of the energy use and distribution cycle, therefore, focusing on these areas will help prepare the country for the future while having a positive impact on the environment.
The Finance Minister announced the following upcoming developments in the education sector:
- Formation of digital university: The development comes across to cope with the ongoing fight against Coronavirus. With schools still closed, this is a way to provide students access to world-class education within their homes. The university will also impart education in regional languages, with the government providing supplementary educational materials to all the states. Further, the digital university will be built on a “hub and spoke” model, with e-learning content delivery platforms, focusing on “1 class 1 TV channel”
- Strengthen digital infrastructure: Since the internet penetration remains low in remote and rural areas of the country, the digital university will work hand-in-hand with central universities and provide requisite digital training and infrastructure.
- Focus on agri education: The finance minister announced the revision of the syllabus of agricultural universities across the country. The revised syllabus shall include chapters regarding zero-budget farming, organic farming, and modern farming.
Impact: The present discussions regarding educational development, if successfully implemented, will pave the way towards quality education at the comfort of one’s home, and will reduce the need for infrastructural costs, conveyance costs, etc. Further, it will be a great step towards creating a digital future for the education segment.
Inclusions in the agriculture syllabus would help promote the government’s agenda of zero-budget natural farming. It will further help make farming more sustainable and reduce costs of input, thereby improving a farmer’s income.
- Ease of Business and Living
To launch EODB 2.0, the government intends to do away with 1486 Union laws and 75,000 compliances to accelerate Ease of Doing Business and Ease of Living. Further, the finance minister proposed to cap the surcharge on long-term capital gains from shares of listed and unlisted companies at 15%.
Impact: While the government hasn’t expressly discussed the compliances it intends to repeal, doing away with these would help create a more business-friendly environment, letting existing businesses run on smooth ground while also boosting the advent of start-ups in the country. Surcharge capping will help retain high network individuals of the country, thereby keeping the country’s finances stable and within.
The several changes regarding cryptocurrency, NFTs, GST, income tax and digital rupee were announced. However, no change was announced regarding the personal income tax sphere.
Taxes on Virtual Assets:
The finance minister announced the taxation policy for the transfer of and gains through cryptocurrency. The announcements were:
- 30% tax levied on crypto transfers
- 1% TDS levied on transfers
- Charges on gifting of digital assets: to be borne by the transferer
- Losses on cryptocurrency investments will not be allowed to be set off.
Employee Taxes: The finance minister announced an increase of 14% in the tax deduction limit. This increase is upon the employer’s contribution to the National Pension Scheme (NPS) account of state employees.
Dividend from foreign company: The Dividend from a foreign company to an Indian company having 26% stake is subject to normal corporate tax rate instead of concessional tax rate of 15%.
Eligible Start Up: The Budget has proposed the extension of tax holiday for eligible start up from March 31, 2022 to March 31, 2023.
COVID 19: The amount received by any person towards medical treatment actually incurred on account of COVID 19 is not taxable. The amount received by the family member of a deceased person on account of COVID 19 shall not be taxable if:
- the amount is provided by an employer
- the amount is received from other person up to 12 lakh and received within 12 months from the date of death.
Introduction of Digital Rupee:
The Union Budget 2022-23 proposed the introduction of a Digital Rupee- the Central Bank Digital Currency (CBDC). This Digital Rupee will be issued by the Reserve Bank of India itself and will be based on blockchain and other such technologies.
Impact: The increase in tax deduction means that employees will now be able to avail more tax returns as part of the NPS. Further, the introduction of the Digital Rupee will pave the way to creating a solid ground for government-backed digital currency, thereby boosting the digital economy. The use of blockchain technology would mean that the government will have access to citizens’ data (regarding the use of digital currency, schemes availed, etc.).
Discussing the taxation scheme for cryptocurrencies, while the taxes levied are notably high, along with the 1% added TDS on payments made using digital currency, it looks like a subtle play on the government’s part to reduce the use of crypto and non-fungible tokens by private players.
GST
The Union Budget 2022-23 announced the restriction on availing the input tax credit on the supply. The said changes will have an impact on the working capital and recipient requires to make a continuous watch and enforce the suppliers to complete the GST compliance.
While these areas remain the highlight of the Union Budget 2022-2023, other announcements include concession on custom duty on certain consumer electronic devices, rolling out e-Passports with chips to ease overseas travel, and setting up task forces for the development of animation visual effects, comics, gaming sector, etc.
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