Budget 2023 was unlocked

28th January 2023 – 3rd February 2023 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
4,136.48	12,006.95	18.33	33,926.01	2,279.72	15,999.40
1.62%	3.31%	-0.97%	-0.15%	1.74%	0.23%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
17,854.05	$1,877.70	$22.40	$79.82	82.49	89.07
1.42%	-2.59%	-5.61%	-7.41%	1.20%	0.51%

Source: MarketWatch 

Hello Saturday,

This week on February 1, the 2023 Union Budget of India was presented by Finance Minister Nirmala Sitharaman, which focused on seven priorities or Saptarishi. 

• Income tax rebate limit for individuals increases from ₹5 lakh to ₹7 lakh under the new tax regime; the new tax regime is now the default regime
• Capital expenditure outlay by the government increases by a massive 33.4% to ₹10 lakh crore; fiscal deficit is estimated at 5.9% of GDP in 2023-2024
• Indian fintech industry to significantly benefit in the form of reduced costs and a simplified KYC process from the expansion of the scope of DigiLocker
• Startups across industries to benefit; agriculture accelerator fund, centres of excellence for AI, labs for 5G-based apps, and more to be set up 
• Tax collected at source increases from 5% to 20% for foreign remittances for purposes other than education and medical treatment, such as overseas investments and travel 

Taking stock | New tax regime FTW | LRS speedbumps | CapXL | Fintechtonic shifts | Upping startup support | Invest wisely

Taking stock

US stocks ended lower on Friday after disappointing tech earnings and a stronger-than-expected jobs report. While the Dow slipped 0.15%, S&P gained 1.62%, and Nasdaq jumped 3.31%, maintaining a five-week winning streak. 

Now, shifting the focus to the homeland in this week’s Rearview Mirror, let’s look at the 2023 Union Budget that was presented. The seven priorities or ‘Saptarishi’ cover inclusive development, reaching the last mile, infrastructure and investment, unleashing the potential, green growth, youth power, and the financial sector. The 60-page document of the Finance Minister’s budget speech may be a lot to go through, so here are some of the most relevant highlights for investors. 

New tax regime FTW

Everyone is talking about changes in tax slabs and rebate limits, and a lot of that can sound like confusing noise. So, let’s first identify whether any of the income tax changes in Budget 2023 are relevant to you. 

• Are you following the old tax regime? If yes, then no changes are applicable to you. If you are following the new tax regime, then you need to know more. 
• If you earn ₹7 lakh or below annually, then you do not have to pay any tax under the new tax regime. Your entire income is tax-free, and you are eligible for a tax rebate. This limit has been extended from ₹5 lakh.
• However, if you earn above ₹7 lakh, then you have to pay income tax as per the following slab rates:

Total annual income (₹)	Income tax rate under the new regime
Up to 3 lakh	Nil
3 to 6 lakh	5%
6 to 9 lakh	10%
9 to 12 lakh	15%
12 to 15 lakh	20%
Above 15 lakh	30%

• It’s important to note that the exemption of up to Rs 7 lakh is not applicable in part or full if you earn even a rupee more than Rs 7 lakh. For instance, if you earn ₹7.1 lakh, then you have to pay 5% tax on income between 3 to 6 lakhs and 10% on the rest of your income. 
• Under the new tax regime, no tax deductions such as the standard deduction or section 80C deductions were available. However, going forward, the standard deduction of ₹52,500 is applicable to individuals with an annual income of above ₹15.5 lakh in the new tax regime. 
• The government is clearly trying to nudge taxpayers toward the new tax regime and has even made it the default regime now. However, you are still free to opt for the old tax regime. 
• For those who earn more than ₹5 crore annually, there is a tax surcharge applicable. This surcharge has been brought down from 37% to 25%. 

LRS speedbumps

Another area of tax you need to consider is the tax you pay for foreign remittances. Under the Liberalised Remittance Scheme (LRS), Indian residents can remit up to $250,000 annually. A Tax Collected at Source (TCS) is applicable to such remittances above ₹7 lakh. Budget 2023 has increased the TCS rate from 5% to 20% for remittances for purposes other than education and medical treatment. 

This means when you make overseas investments, such as buying stocks, exchange-traded funds, or investing through mutual funds, you will have to pay 20% at the time of investment. However, this amount is adjustable against your tax liability while filing income tax returns.

Earlier in Jan, Indian investors using certain apps to invest in US stock market faced issues with their transfers getting stuck following RBI’s notice to State Bank of Mauritius to halt all LRS transactions. The order was based on certain material supervisory concerns observed in the bank. Appreciate, though, is completely above board and faces no such issues – funds transfer remains simple, one-click, and easy as ever. 

CapXL 

Budget 2023 is heavy on Capital Expenditure (CapEx) as the Government of India plans on spending a lot to boost the economy. The capital expenditure outlay for 2023-2024, at ₹10 lakh crore, is 33.4% higher than that of the previous fiscal year. 

Source: Press Information Bureau India

This translates to 3.3% of the GDP and is almost three times the pre-pandemic capital outlay. This is primarily going to boost the infrastructure, railways, and housing sectors and generate employment. While such an outlay is massive, and the government is going to have to borrow quite a bit, the multiplier effect will help benefit the country both in the short and long term. According to the Finance Minister, every ₹1 spent on CapEx creates an immediate multiplier effect of ₹2.45 and that of ₹3.14 in the long term.

Fintechtonic shifts

Fintech startups have been playing an increasingly vital role in financial literacy and inclusion in India over the last few years. The number of fintech firms in the country now exceeds 7,000, making it third on the list of the countries with the most fintech companies, right behind the US and China. And Budget 2023 will boost fintech innovations in some key ways. 

First, the scope of DigiLocker, the Government’s digital document repository, will be expanded and included in the host of Public Digital Infrastructure (PDI) solutions available to fintech companies. As of now, fintech startups have had access to PDI solutions such as Aadhaar, video Know-Your-Customer (KYC), UPI, PM Jan Dhan Yojana, and India Stack. 

Second, an Entity DigiLocker will also be set up for use by businesses, including MSMEs. Third, financial firms can now adopt a risk-based KYC process instead of a one size fits all method making the credit approval and disbursal processes more streamlined. All these steps are highly beneficial for fintech firms as they will not only simplify the KYC process but also help reduce compliance and operational costs. 

Additionally, a national financial information registry will be set up, which will serve as the central repository of financial and ancillary information. This credit public infrastructure will make it easier and more cost-effective for fintech lenders to assess the creditworthiness of borrowers and promote a more efficient credit flow. 

Upping startup support 

India is the world’s third largest ecosystem for startups, and here are some of the key ways in which Budget 2023 supports this vital ecosystem:

• The date of incorporation for income tax benefits for startups will be extended from March 31, 2023, to March 31, 2024.
• The benefit of carrying forward losses on change of shareholding of startups will also be extended from seven years of incorporation to ten years. 
• Centres of excellence for Artificial Intelligence (AI) will be set up in three top educational institutions to develop cutting-edge apps and solutions across agriculture, health, and sustainable cities. 
• Tech startups will also benefit from the one hundred labs that will be set up in engineering institutions to develop apps using 5G services.
• An agriculture accelerator fund will be set up to promote agriculture-based startups by young entrepreneurs in rural areas. 
• Digital public infrastructure will be built for agriculture to provide information and access relating to credit, insurance, crop health, crop estimation, etc., which will encourage the growth of agri-tech startups. 
• Customs duty exemption will be extended to the import of capital goods and machinery required for manufacturing lithium-ion cells for batteries used in Electric Vehicles (EVs). This will help EV startups by bringing down costs and aiding EV adoption in the country. 
• To boost innovation and research by startups and academia, a National Data Governance Policy will be set up to provide easy access to anonymised data.

Invest wisely 

Budgets are important not just for countries but also for individuals for a strong financial future. It’s essential that you keep track of your cash inflows and outflows and map out your short-term and long-term goals. So, what are your Saptarishi or seven priorities for the coming financial year? Be it capital appreciation from equity investments, capital protection through debt instruments, better diversification through global investments, or building better financial habits, Appreciate has got your back! Download the Appreciate App to undertake goal-based investing, invest your change from daily transactions, and buy high-performing US stocks for better diversification.

Warm regards,
Another week
in the markets