Income tax bonanza, capex push emerge as the stars of Budget 2023-24

• Income tax bonanza for the salaried class and the government’s capital expenditure push have emerged as the stars of Budget 2023-24.
• While the income tax exemptions are expected to increase disposable incomes of taxpayers and thereby boost demand, the capex push is aimed at promoting growth and increasing job opportunities, say experts.
• The government also announced a slew of measures for the agriculture and green energy sectors, promoting the use of technology to boost output and transition to green energy.

An upward revision in income tax slabs and a continued push on capital expenditure investments emerged as the key highlights of the Union Budget 2023-24. While the revised tax slabs under the new tax regime will benefit the middle-class and salaried individuals, the government also announced a 33% increase in its capital investment outlay for FY24 to boost growth and promote job creation.

“We are steering an ambitious people-centric agenda to address global challenges and to facilitate sustainable economic development,” finance minister Nirmala Sitharaman said, announcing the budget.

Despite an increase in capital expenditure outlay, the government has continued on its path of fiscal consolidation. Sitharaman said that while the government will meet the fiscal deficit target of 6.4% in FY23, it has been reduced to 5.9% in FY24, and further below 4.5% in FY 25-26.

Sitharaman also announced that the gross borrowings are estimated at ₹15.43 lakh crore in FY24, lower than the Economic Survey 2023 estimate of ₹15.77 lakh crore.

“This budget is a Bahubali budget. With one arrow multiple targets are shot. Fiscal prudence is achieved with lower deficit and path set till FY26. Consumption is supported through tax cuts. Investment outlay is enhanced. Numbers are realistic or conservative to enhance the credibility,” said Nilesh Shah, managing director, Kotak Mahindra Asset Management Company.

Here are all the major announcements of Budget 2023-24

Slabs for income tax computation enhanced under the new regime: Under the new income tax regime, individuals with an annual income of up to ₹9 lakh will now have to pay an income tax of ₹45,000, which is an effective tax rate of 5%. The government has also increased the limit for rebate under section 87A of the Income Tax Act to ₹7 lakh from ₹5 lakh earlier.

The following are the new tax slabs:


In addition to this, there’s good news for salaried individuals as well, with the standard deduction being hiked to ₹52,500 from ₹50,000 earlier. Further, the tax exemption limit for leave encashment has been raised from ₹3 lakh to ₹25 lakh.

Lastly, the new income tax regime will be applicable by default going forward. However, assessees will have an option to opt out and file their returns under the old regime.

“More money in the hands of the middle class will have a cascading effect across the economy which needs this push as we continue to depend on domestic demand to beat the global uncertainty,” Sanjeev Krishan, chairperson, PwC in India.

Capital expenditure outlay gets a major boost: In a bid to promote growth and job creation, the government has announced a 33% increase in capital expenditure outlay to ₹10 lakh crore for FY24, or about 3.3% of the gross domestic product (GDP). The capex outlay for FY23 is estimated at ₹7.5 lakh crore.

Sitharaman outlined that infrastructure is one of the seven priorities of the government, which is now backed by the 33% increase in capex outlay for this segment.

Overall, the government’s capex outlay has increased over three-fold from ₹3.1 lakh crore in FY19 to ₹10 lakh crore in FY24.

Here’s how the government’s capex spending has trended since 2019

“This is a positive development for domestic commercial vehicle space and more so for medium and heavy commercial vehicle (M&HCV) domain,” said ICICI Direct.

The government announced an allocation of ₹2.7 lakh crore for roadways and ₹2.4 lakh crore for railways.

“A 33% increase in capital expenditure to ₹10 lakh crore, the highest ever, will go a long way in building roads, ports, and airports — crucial for making India a reliable investment destination. Investment of ₹2.4 lakh crore in railways is commendable,” said Anand Rathi, founder and chairman, Anand Rathi Group.

Apart from this, Sitharaman also announced an outlay of ₹10,000 crore per annum to develop urban infrastructure. The government has also announced a 66% increase in funding for the PM Awaas Yojana to ₹79,000 crore in FY24, which will benefit engineering, production and construction companies.

Further detailing the infrastructure push, Sitharaman said that the government has identified 100 critical transport infrastructure projects for steel, ports, fertilizers and other sectors with an investment outlay of ₹75,000 crore, which includes a private sector investment of ₹15,000 crore.

Agri Accelerator Fund to encourage innovation: In a bid to promote the adoption of technology in the agriculture sector, the government announced a new Agri Accelerator Fund to promote agri-tech startups in rural areas, with a cluster-based and value chain approach through public-private partnerships.

“The proposal to set up an Agri Accelerator Fund for agri-tech startups is a welcome move, and was much anticipated. Agri-tech startups who are focusing on improving the market reach for agricultural products and produce, as well as last mile delivery of products to farmers should benefit from this move,” said Raj Ramachandran, partner, JSA.

Sitharaman also announced a slew of measures for the agriculture sector, which are:

• Increase in agriculture credit target to ₹20 lakh crore, with a special focus on animal husbandry, dairy and fisheries.
• A new sub-scheme of PM Matsya Sampada Yojana with a targeted investment of ₹6,000 crore to further enable activities of fishermen and fish vendors.
• Computerisation of 63,000 primary agricultural credit societies with an investment outlay of ₹2,516 crore.

Green energy ambitions get a boost: The government also announced a slew of measures to encourage and promote green energy in India, including ₹35,000 crore priority capital for transition from fossil fuels to green energy.

Of this, the specific outlay for National Hydrogen Mission has been set at ₹19,700 crore. The government has set a target of 5 million metric tonnes of hydrogen production capacity by 2030.

Key players in the hydrogen space are Mukesh Ambani and Gautam Adani. Their green energy bets, primarily based on green and blue hydrogen, amount to $125 billion.

‘Force multiplier’ budget, say analysts

Overall, the budget has been well-received by experts, with the broad consensus being that this is a growth-oriented budget.

“Growth with fiscal consolidation continues to be the continuing theme with capital expenditure at 3.3% of GDP while being committed to the long term 4.5% deficit target. Providing more incentives under the new tax regime to middle class Indians, will also widen the net of those who can invest,” said Radhika Gupta, MD and CEO, Edelweiss Asset Management.

Sensex zoomed 1,180 points reacting to the tax announcements made by the government. The tax exemptions under the new regime will increase the disposable income in the hands of taxpayers, according to ICICI Securities, helping boost demand.

“In keeping with its focus on inclusive growth, the Union Budget has hiked outlays on infrastructure and agriculture which in our view would have a force multiplier impact on the economy,” said S Ranganathan, head of research at LKP Securities.

According to economists, the reduction in fiscal deficit targets for FY24 through FY26 will also offer relief for bond markets, with the 10-year bond yield projected to moderate to 7-7.1% in FY24, according to Abheek Barua, chief economist, HDFC Bank.

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