GR Exclusive: ICRA Expects These Changes In Budget 2024 For Common Man: From Green Bonds, Mutual Funds To NPS

There are less than two weeks left for Finance Minister Nirmala Sitharaman to present India's interim budget for FY25 ahead of Lok Sabha elections. Leading rating agency, ICRA expects a host of changes in taxation, pensions, insurance, mutual funds, equity funds, and non-equity investment. These measures if become reality will be a big boost for common citizens.

Markets:

Under markets, ICRA is expecting measures and policies for cryptocurrency, sovereign green bonds, and energy transition funds. Also, ICRA expects changes in double taxation on dividends of listed companies' equity shares.

For cryptocurrency, ICRA Analytics said the market seeks a more comprehensive policy on cryptocurrency regulation. A regulatory framework may result in more inclusive participation in the crypto market.

In the case of sovereign green bonds, ICRA said that the stage is set for sovereign green bonds to make a comeback in the Budget as green bonds address the funding requirements for wind, power and hydropower sectors.

Meanwhile, for the energy transition fund, ICRA said, "a mega capital outlay may be earmarked for energy transition and net-zero objectives. Government is expected to focus on new-age fuels - green hydrogen, ethanol, and other biofuels."

Mutual Funds:

ICRA said that the government may consider addressing the difference in tax treatment between equity mutual funds and Unit-linked Insurance Plan (ULIP). Also, an equity Fund of Fund needs to be at par with equity-oriented mutual funds for taxation.

Moreover, ICRA believes there is a need for simplification of capital gains structure.

The rating agency highlighted that the capital gains taxation structure may be simplified by introducing a uniform holding period across domestic equities and mutual funds. Uniformity in tax treatment is expected to encourage higher compliance. However, it needs to be noted that equity investors take higher risks than other investors and hence the same needs to be taken care of accordingly.

Non-Equity Funds:

Tax amendments in the Finance Bill last year have sparked a level playing field between bank deposits and debt mutual funds.

However, ICRA also believes that an investor in fixed deposit pockets assured returns irrespective of interest rate movements while a debt fund investor is exposed to not only interest rate risk, but credit risk as well in case the issuer defaults.

Additionally, it said, with the removal of earlier indexation benefits, global equity funds, equity fund of funds, gold funds and hybrid funds holding less than 35% in equities turned out to be tax-unfriendly and suffered collateral damage.

Hence, the tax change might be revisited in the budget.

Pension And Insurance:

ICRA believes that FM may consider changing the limit of pension per month under Atal Pension Yojana.

Also, there is an expectation that FM bring in huge changes in annuity under the National Pension Scheme (NPS) since senior citizens heavily depend upon it. Additionally, a tax-free status to this annuity will be icing on the cake with more money in the hands of elderlies.

Finally, there are expectations of separation of the tax deduction for life insurance for policyholders rather than including it under section 80C of the IT Act.

Taxation:

Under security transaction tax (STT), ICRA said the markets have had this demand for removal of STT for a few years now and as the GST collection went up, this demand has again gained traction. The move will attract more investors to invest in domestic equity markets.

Meanwhile, there are hopes of relief in double taxation in dividends of listed equities.

As per the government's Union Budget website, the world has recognised the Indian economy as a bright star. India's growth rate is the highest among all the major economies. The G20 Presidency gives us a unique opportunity to strengthen India's role in the world economic order. In these 9 years, the Indian economy has increased in size from being 10th to 5th largest in the world.

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