India’s Union Budget 2024-25: Key Announcements

India’s Union Budget 2024 has introduced measures targeting education, employment, skilling, and the middle class. Nine priority sectors have been identified and key changes introduced to the capital gains tax regime. We discuss the major announcements in this article.

The third consecutive Narendra Modi government (‘Modi 3.0’) began its term following the culmination of general elections in June. Presenting the first union budget of the Modi 3.0 government on July 23, 2024, India’s finance minister Nirmala Sitharaman emphasized the following themes of the Union Budget 2024: education, employment, skilling and industry 4.0, and the middle class.

Nine priority segments were identified in the Union Budget 2024-25:

1. Productivity and resilience in agriculture
2. Employment and skilling
3. Inclusive human resource and development, and social justice
4. Manufacturing and services
5. Urban development
6. Energy securities
7. Infrastructure
8. Innovation and Research & Development
9. Next-generation reforms

Below we list key provisions and measures announced to address growth in these priority segments.

Capital expenditure

Total capital expenditure is projected to be INR 11.1 trillion (US$132 billion), marking a 16.9 percent increase over the revised estimates for 2023-24 – this number is unchanged from the interim budget from February 2024.

Effective capital expenditure is estimated at INR 15.01 trillion (US$179 billion), an 18.2 increase over the previous year.

India’s total expenditure for 2024-25 is estimated at INR 48.2 trillion (US$575 billion).

Fiscal deficit

The Union Budget announced the revised fiscal deficit target for 2024-25 at 4.9 percent of the GDP – lower than the 5.1 percent announced in the interim budget. The government aims to reduce the fiscal deficit to 4.5 percent or lower by FY 2025-26. The fiscal deficit is the gap between the government’s total revenue and total expenditure, indicating the amount the government may need to borrow.

Urban development and infrastructure

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The central government will collaborate with the States to develop ‘Cities as Growth Hubs,’ focusing on economic and transit planning and orderly development of peri-urban areas using town planning schemes. The framework for redevelopment of existing cities will include enabling policies, market-based mechanisms, and regulations.

• A Transit Oriented Development plan will be formulated for 14 large cities, along with an implementation and financing strategy.
• PM Awas Yojana Urban 2.0 aims to address housing needs for 10 million urban poor and middle-class families with an investment of INR 1000 billion (US$11.9 billion), including INR 220 billion (US$2.6 billion) in central assistance over five years and interest subsidies for affordable loans.
• States will be encouraged to reduce high stamp duties, especially for properties purchased by women.
• Land-related reforms will digitize urban land records with GIS mapping and an IT-based system for property record administration.
• The government will facilitate the development of investment-ready industrial parks in or near 100 cities and sanction 12 industrial parks under the National Industrial Corridor Development Programme.

Support for micro, small and medium enterprises (MSME)

The finance minister Sitharaman announced a comprehensive package for the MSME segment, including financing, regulatory reforms, and technological support that will be extended to assist small businesses to grow and compete globally. Along with this, India will launch a new credit guarantee scheme for its manufacturing MSMEs. The scheme will provide term loans without seeking collateral for machinery and equipment to micro and small businesses, offering guarantees of up to INR 1 billion (US$11.94 million) per applicant. However, borrowers will be required to pay an upfront, annual guarantee fee on the reduced loan balance.

• Public sector banks will develop internal capabilities to assess MSME creditworthiness using digital footprints.
• A mechanism to ensure continuation of bank credit to MSMEs during stress periods will be established, supported by a government-promoted fund.
• Mudra loan limits will increase from INR 1 million (US$11,949) to INR 2 million (US$23,899) for entrepreneurs who have successfully repaid previous loans under the ‘Tarun’ category.
• The turnover threshold for mandatory onboarding on the TReDS platform will be lowered from INR 50 billion (US$597 million) to INR 25 billion (US$298 million), expanding the platform’s scope to medium enterprises. (TReDS is an online platform designed to help MSMEs unlock working capital by converting their receivables into cash, providing capital access to credit-starved small businesses in India.)
• Small Industries Development Bank of India (SIDBI) will open 24 new branches this year, increasing its reach to 168 out of 242 major MSME clusters.
• Financial assistance will be provided for 50 multi-product food irradiation units and 100 NABL-accredited food quality and safety testing labs.
• E-Commerce Export Hubs will be established in a public-private partnership model to support MSMEs and traditional artisans in accessing international markets.

R&D and innovation

India’s central government will set up the Anusandhan National Research Fund. The fund will be utilized for basic research and prototype development. Along with this, a mechanism for private sector-driven research and innovation at a commercial scale with INR 100 billion (US$1.1 billion) financing pool will be set up.

Healthcare and health-tech

For the healthcare sector, the finance minister has allocated INR 9.095 billion (US$108 million) for the union health ministry for 2024-25. The current budget allocation is 12.96 percent higher as compared to the previous union budget of FY 2023-24.

In a major relief for cancer patients and cancer treatment, Sitharaman has said that customs duties will be exempted on three cancer treatment drugs: Trastuzumab Deruxtecan, Osimertinib, and Durvalumab.

Changes have been proposed in Basic Customs Duty (BCD) on X-Ray tubes and flat panel detectors for medical X-Ray machines. These customs duties changes will be implemented under the Phased Manufacturing Program.

Centrally sponsored schemes:

• The National Health Mission’s budget has increased from INR 3.155 billion (US$37.70 million) in 2023-24 to INR 3.6 billion (US$43.01 million) in 2024-25.
• The Pradhan Mantri Jan Arogya Yojna (PM-JAY) allocation has risen from INR 68 billion (US$812 million) to INR 73 billion (US$872 million).
• The National Tele Mental Health Programme’s budget has grown from INR 650 million (US$7.7 million) to INR 900 million (US$10.7 million).
• The National Digital Health Mission’s allocation remains steady at INR 2000 million (US$23.89 million).
• All India Institute of Medical Sciences, New Delhi’s, one of the leading government health institution, budget has been increased from INR 427.8 million (US$5.1 million) to INR 452.3 million (US$5.4 million), and the Indian Council of Medical Research’s budget has grown from INR 229.5 million (US$ 2.7 million) to INR 273.2 million (US$3.2 million).

Financial assistance for NDA ally ruled states: Bihar and Andhra Pradesh

Bihar

The finance minister announced several infrastructure initiatives for Bihar, including:

1. Development of an industrial node in the Gaya district.
2. Financial assistance for road projects such as:

• Patna-Purnea Expressway
• Buxar-Bhagalpur Expressway
• Spurs to Bodhgaya, Rajgir, Vaishali, and Darbhanga
• A new 2-lane bridge over the Ganga at Buxar, costing INR 260 billion (US$3.1 billion).

3. Power projects, including a new 2400 MW plant at Pirpainti, with a budget of INR 214 billion (US$2.5 billion).
4. Construction of new airports, medical colleges, and sports facilities.
5. Accelerated external assistance from multilateral development banks.

Andhra Pradesh

For Andhra Pradesh, the central government will:

1. A special financial support package of INR 150 billion (US$1.79 billion) for Andhra Pradesh through multilateral agencies to develop the state’s capital city Amaravati. Additionally, the Union Budget 2024 outlined plans for future allocations to Andhra Pradesh, governed by Chief Minister Chandrababu Naidu. This will help fulfil aims of the Andhra Pradesh Reorganization Act.
2. Finance the Polavaram Irrigation Project.
3. Support industrial development with grants for infrastructure in the Kopparthy node on the Vishakhapatnam-Chennai Corridor and Orvakal node on the Hyderabad-Bengaluru Corridor.

North-east India

Over 100 India Post Payment Bank branches will be established in the north-eastern parts of the country to expand banking services.

Job creation and skilling initiatives

Three new “Employment Linked Incentives” have been announced, linked to EPFO enrolment, and aimed at first-time employees and boosting job creation:

1. Scheme A: First-time employees

• New workers in formal sectors will receive a one-month wage, up to INR 15,000 (US$179,2), in three instalments.
• Eligibility: Salary up to INR 100,000 (US$119.5) per month.

2. Scheme B: Manufacturing job creation

• Additional employment incentives for first-time employees in manufacturing.
• Incentives will be provided for EPFO contributions in the first four years of employment.

3. Scheme C: Employer support

• Incentives for employers hiring additional employees with salaries up to INR 100,000 per month.
• The central government will reimburse employers up to INR 3,000 (US$38.85) per month for two years towards EPFO contributions for each new hire.

A new central government-sponsored skilling scheme will be launched in collaboration with state governments and industry to train 2 million youth over 5 years. This includes upgrading 1,000 Industrial Training Institutes with industry-aligned course content – to make the workforce industry 4.0-ready.

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The Model Skill Loan Scheme will be revised to offer loans up to INR 750,000 (US$8,962) with a government-backed guarantee. The central government will provide monetary support for education loans up to INR 1 million for students in higher education who are not eligible for other benefits.

E-vouchers will be issued to 100,000 students annually for a 3 percent interest subvention on the loan amount.

INR 20 billion (US$238 million) has been provided to the corporate affairs ministry for enabling internships to youth across 500 companies and INR 100 billion (US$1.19 billion) has been provided to the labor ministry to enact other policies announced under the Employment Linked Incentives (ELI) scheme.

Taxation

The Union Budget 2024 has announced various changes in India’s taxation policies. These range from providing income tax relief to stimulating spending and rationalizing capital gains tax rates and holding periods for various asset classes.

• Personal income tax

The government has reduced income tax rates for certain income brackets to boost consumption. Annual incomes between INR 300,000 and INR 700,000 will now be taxed at 5 percent, easing the previous upper limit of INR 600,000.

Data: Union Budget 2024-25

The standard tax deduction for salaried individuals will increase from INR 50,000 (US$597.48) to INR 75,000 (US$896.22). For family pensions, the standard deduction will rise from INR 15,000 (US$179.24) to INR 25,000 (US$298.7).

Changes to the new tax regime could result in an approximate annual net gain of INR 17,500 (US$209) for taxpayers. Deductions related to family pension contributions and non-government employees’ contributions to the new pension scheme will also be increased.

• TDS filing

The Union Budget 2024 proposes decriminalizing delays in TDS payments up to the due date of statement filing. The government also plans to issue a standard operating procedure (SOP) for TDS defaults and will take steps to simplify and rationalize the compounding guidelines in such cases.

• Capital gains tax

The short-term capital gains tax (STCG) for equity investments held for less than a year will increase from 15 percent to 20 percent. For shares held for more than 12 months, the long-term capital gains tax (LTCG) will rise from 10 percent to 12.5 percent.

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LTCG on listed equity, equity-oriented mutual funds, and business trust units will be exempt from tax up to INR 125,000 annually, an increase from the current INR 100,000.

For listed bonds and debentures, LTCG will be reduced to 12.5 percent from 20 percent. STCG rates remain unchanged. Unlisted bonds and debentures will have LTCG taxed at applicable slab rates instead of a flat 20 percent, while STCG rates remain unchanged.

According to the amendments in the Finance Bill FY2024, for other asset classes like property and gold, taxpayers can choose between paying a 20 percent LTCG tax with indexation on property sold before July 23, 2024, or a 12.5 percent LTCG tax without indexation. STCG rates remain unchanged.

• Securities transaction tax

To discourage retail investors from risky futures and options (F&O) trading, the securities transaction tax (STT) on these trades will be increased. STT on the sale of options in securities will rise from 0.0625 percent to 0.1 percent of the option premium, and on the sale of futures in securities from 0.0125 percent to 0.02 percent of the traded price.

• TDS and TCS
  

The TDS rate for e-commerce operators will be reduced from 1 percent to 0.1 percent.

TCS credit will be allowed against TDS deducted on salaries.

The Finance Bill will simplify the tax regime for charities, the TDS rate structure, reassessment provisions, search provisions, and capital gains taxation.

• Angel tax

To support the startup ecosystem, the government will abolish the angel tax for all classes of investors in startups.

• Corporate tax

The corporate tax rate for foreign companies will be reduced from 40 percent to 35 percent to attract foreign capital for India’s development needs.

• Share buy-backs

In the proposed Budget 2024, income from the buy-back of shares by companies will be taxable as dividend income for the recipient investor, replacing the current regime where an additional income tax is levied on the company. Additionally, the cost of these shares will be considered a capital loss for the investor. The buy-back tax had been introduced in 2013 for unlisted companies and extended to listed companies in 2019.

Agriculture and allied sector

The finance minister has announced a budget allocation of INR 1.52 trillion (US$18.16 billion) for agriculture and allied sectors.

New 109 high-yield and climate resilient varieties of 32 field and horticulture crops will be released for cultivation by farmers. In the next 2 years, 10 million farmers will be initiated into natural farming supported by certification and branding.

10,000 need-based bio-input resource centers are proposed to be set-up.

The government will draw a strategy for increased production, storage and marketing of pulses and oil seeds such as mustard, groundnut, sesame, soybean, and sunflower.

Human resource development and social justice

The budget proposes to step-up existing schemes, such as PM Vishwakarma, PM SVANidhi, National Livelihood Missions, and Stand-Up India. The said schemes are meant for supporting economic activities by craftsmen, artisans, self-help groups, scheduled caste, schedule tribe and women entrepreneurs, and street vendors.

It has been announced that a customized plan, namely Purvodaya, will be formulated for overall development of the eastern region of the country, covering the states of Bihar, Jharkhand, West Bengal, Odisha, and Andhra Pradesh. The development plan will include human resource development, infrastructure, and generation of economic opportunities in the targeted regions.

What is the Union Budget?

A Union Budget in India is a process where the central government informs the parliament about its financial status – covering income, expenditure, and borrowing. Since a budget is presented at the end of one financial year and the beginning of another, it outlines how much money was raised and spent in the past year, as well as the borrowing needed to cover any shortfall. Additionally, it provides estimates for the upcoming financial year, detailing expected earnings, planned expenditures, and anticipated borrowing to bridge any gaps.

It should be noted that when the nation is scheduled for a general election year, the ruling coalition in the center prepares an interim budget. Following the end of general elections and the formation of a new administration, an elaborate union budget is introduced in parliament. Hence in February 2024, the finance minister had presented an interim budget in the parliament.

(US$1 = INR 83.68)

(This article was originally published on July 23, 2024. It was last updated on August 7, 2024.)

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