[Opinion] India’s Fiscal Budget 2024 – A Step Towards Empowering the Middle Class

CA Ashish Garg & CA Navya Gupta – [2024] 164 taxmann.com 798 (Article)

As the old proverb goes, “The journey of a thousand miles begins with a single step” and this resonates profoundly with the unveiling of India’s Union Budget for the fiscal year 2024. This Budget is not just a financial statement but a blueprint for the nation’s journey towards economic resilience and inclusive growth. It is a step that sets the momentum for a thousand more opportunities, aiming to navigate the complex socio-economic landscape of the world’s largest democracy.

Our Hon’ble Finance Minister Mrs. Nirmala Sitharaman presented the full Budget of the re-elected governmentled by the Hon’ble Prime Minister Shri Narendra Modi on 23rdJuly 2024. This marked the firstUnion Budget of present governmentin its third term in office which aimed at continuingthe India’s growth trajectory at a full pace.

1. Empowerment of the Middle Class

The empowerment of the middle class in the Union Budget 2024 can be seen through various measures that are designed to enhance their economic stability and growth prospects. These measures are typically multifaceted, addressing taxation, housing, education, healthcare, and employment.While we know that the Government’s focus is to provide requisite impetus to the key priority areas which includes agriculture, skill development, employment, support to MSME, industrial expansion, ease of doing business, innovation, and R&D, etc. however, the same cannot be accomplished without the support of middle-class taxpayer’s who are the backbone of the economy.The important change announced by the Budget is with regard to the creation of job opportunities through Employment linked Incentive (‘ELI’) Scheme.

The ELI Scheme introduced in Budget is a strategic initiative aimed at boosting employment across various sectors. It is expected that this willsignificantly help the middle-class youths who will be entering the work force first-time and at the same time incentivize the employers creating more jobs, particularly in industries that have the potential for mass employment.

The ELI Scheme is part of the government’s broader agenda to tackle unemployment, upskilling the youth and to stimulate economic growth by fostering a conducive environment for job creation. While the specifics of these Schemes are yet to come however, a clue can be traced from the Hon’ble Finance Minister’s Budget speech which provides as under:

1. direct benefit transfer of one month salary in 3 instalments up to INR 15,000 to all first-time employees registered with Employees’ Provident Fund Organisation (EPFO) having salary up to INR 1,00,000 per month.
2. incentive on additional employment in the manufacturing sector in respect of first-time employees registered with EPFO, both to the employee and the employer with respect to their EPFO contribution in the first 4 years of employment.
3. reimbursement to employers an amount of INR 3,000 per month for 2 years towards EPFO contribution for each additional employee having salary up to INR 1,00,000 per month.

While the ELI Scheme is expected to have a significant impact on the economy by encouraging businesses to expand their workforce, however, the government needs to bring appropriate checks and balances to ensure that the scheme reaches the intended beneficiaries and does not get exploited by businesses that do not contribute to genuine job creation.

2. Changes in personal tax structure

Another important change proposed by the Budget is with regard to the New Personal Tax Regime (‘NPTR’) or new tax regime, introduced vide Finance Act 2020. Over the years, we have seen multiple attempts of the government to make the new tax regimemore lucrative by making announcements every year via the budget. As per data available till now for the last fiscal year, more than two-thirds have availed the new personal income tax regime1. To continue its commitment, through this year’sbudget as well,theHon’ble Finance Ministerhas proposed inter-alia enhancement of income-tax slabs, increased standard deduction from INR 50,000 to INR 75,000for individual taxpayers opting for NPTR. It is expected that these positive changes will bring net saving of INR 17,500 in the hands of the individual taxpayers availing NPTR as compared to the old tax regime.

With the aim of encouraging and incentivizing taxpayers to shift to the NPTR, another benefit is provided in the form of increase in contribution limit to New Pension Scheme (NPS) by the non-government employer from 10% to 14% of employee’s salary. Further, the limit of deduction towards family pension is marginally increased to INR 25,000 from INR 15,000 which remained unchanged from decades.

Further, there are no relief to the class of individual taxpayer’s who are continuing old tax regime on account of variousfinancial obligations opted under erstwhile tax regime such as servicing home loan EMIs, contributing towards various payment-based tax benefit schemes like life insurance policies, Mediclaim policies, etc. While there was no discussion in the Budget announcements to discontinue the old tax regime, however making NPTR more lucrative by keeping the old regime in a steady state is a clear message to the middle-class taxpayers to re-visit their tax planning or retiral benefit schemes availed under the old tax regime.

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