Union Budget 2022 decoded

by Anushi Jain

Finance Minister Nirmala Sitharaman presented the budget for the financial year 2022-2023. The Union Budget this year encompassed these 7 major engines of growth.

The 7 engines of economic growth

The Budget started off on a positive note with the Finance Minister highlighting that India's growth trajectory has been better than anticipated so far. Key points highlighting the growth push were

  • India's economic growth in current year is projected at 9.2%, which is the highest among all large economies
  • The economy has shown great resilience to recover from covid-related economic growth debasing.
  • Aim to create 40 lac new jobs in the year

Sector Highlights

On a sectoral front, the below sectors and themes were given significant pushes and budgetary allowances:

Infrastructure

  1. Introduction of additional 25,000 km National highways all around India.
  2. A 35.4% increase in capital expenditure this year.
  3. Rs 7.5 lac crore earmarked for capex for the financial year 2022-23.
  4. Additional borrowing of Rs 1 lac crore has been provided for states for their capex related activities.
  5. Sovereign green bonds to be issued to mobilize resources for green infrastructure.

Financial Inclusion

  1. 1.5 lac post office accounts to come under banking sector purview enabling financial inclusion and access to accounts through net banking, ATMs specifically for rural adoption.
  2. 75 digital banking units to be setup in 75 districts of the country by scheduled commercial banks.
  3. The Finance Minister acknowledged that digital payments, banking and fintech innovation has grown rapidly in the past few years and the government displayed its intent to support the continued support to these segments

Green energy

(a) EV

  1. Introduction of a battery swapping policy and interoperability standards to increase number of charging stations to facilitate adoption of EVs in public transportation and goods mobility.
  2. Private sector encouraged to come up with sustainable and clean solutions for energy-as-a-service to boost EV adoption.

(b) Solar energy

  1. Target of 280 GW solar capacity to be installed by 2030.
  2. 19,500 crore allotted for Production Linked Incentive(PLI) for manufacturing high-efficiency solar PV modules

Some other noteworthy announcements in the Budget included

  • The plan to launch thematic funds in areas of climate action, deep tech, digital economy, pharma and agri-tech with government stake at 20% and funds being managed by private managers.
  • Introduction of a central bank digital currency - Digital rupee using blockchain to be issued by RBI in 2022.
  • Emergency Credit Line Guarantee Scheme (ECLGS) extended till March 2023.
  • Defense R&D to be opened up for startups and private enterprises would be encouraged to partake in designing and development of military equipment.
  • Introduction of E-passport embedded with digital chips will be rolled out this year.
  • Increase in custom duty on imported wireless products like headphones, earphones, earbuds, neckbands, headsets and portable Bluetooth speakers to promote domestic manufacturing of high growth electronic items.

Fiscal Deficit

An important part of the Budget each year is the fiscal deficit number. The current year fiscal deficit stood at 6.9% against the projection of 6.8%.

The government set a target of 6.4% for FY 2022-23. The FM re-emphasised that the government is on track to achieve its long-term target of below 4% fiscal by 2025-26

Direct and Indirect Taxes

Part B of the budget included with what most people were most curious to know - changes in direct taxation norms. While there were no major changes in personal income taxation - investors still rejoiced treating no bad news as good news.

Changes in direct taxation

  1. Voluntary compliance -  Provision to file updated return for upto 2 years of Assessment Year has been made. The government upon spotting any filing errors, will give tax filers room to correct the same on their own without taking legal action. Updated return must be filed by individuals to include any mistakes, omissions made by them.
  2. Co-operative societies’ minimum alternative tax rate reduced from 18.5% to 15%.
  3. NPS limit revised - The limit of NPS contribution of state government employers increased from 10% -14%.
  4. Tax relief for start-ups extended by a year.
  5. Surcharge on long term capital gains capped at 15%. The surcharge on LTCG arising from sale of equity shares and mutual funds was already at 15%. This rules only uniforms the surcharge rate for LTCG from other assets like unlisted equity, real estate, etc. Do not mistake the base rate with surcharge. The base rate of 10% for listed equities still remains unchanged.

Indirect taxes

The government rejoiced at the grand success of GST adoption and implementation and the FM announced that over 1.4 lac crore had been collected as GST revenue in January 2022, the highest since inception.

Taxation of virtual digital assets

An important announcement that has gathered a lot of interest and caught most people's attention is the introduction of a tax on virtual digital assets or as it is being popularly called now - a crypto tax

In a clear move to reduce speculative investments in crypto-currency, the government has taken an extremely harsh call by taxing the asset at a very high rate, irrespective of income tax slabs and additionally not allowing deductions or set-offs against the same.

  • The government has announced a tax on income from transfer of virtual digital assets at 30%.
  • No deductions are allowed while computing the tax from the same.
  • Loss from transfer of such assets cannot be set-off against gains from any other income head
  • Additionally, TDS is levied at 1% for sale or transfer of such virtual digital asset.
  • Gifting of virtual digital assets will also to be taxed at the hands of the recipient.

In conclusion..

While there were no major direct taxation related changes barring the tax on cryptocurrencies, it is important to pay attention to the themes that were promoted by the government like infrastructure related capital expenditure, clean and green energy, digital and tech adoption and financial inclusion.

The high fiscal deficit also signifies an important message. A loose fiscal policy such as this sets a high base for growth and clearly shows that the government is prioritising economic growth and recovery over fiscal deficit numbers.

Markets also ended the day in green signalling the positive reaction to the Budget announcements and displaying confidence on the long-term economic growth of the country.