Expectations from an interim budget typically differ from those of a regular budget due to its temporary nature and the limited policy changes it can introduce.  An interim budget, also known as a vote-on-account budget, is presented by the government in an election year when general elections are scheduled before the new financial year begins.  Since a full-fledged budget requires the approval of the Parliament, an interim budget is essentially a temporary financial plan to meet the government’s expenditure needs until a new government is formed and presents a full budget.

It’s anticipated that Finance Minister Smt. Nirmala Sitharaman will present the interim budget or Vote on Account for the current government on February 1, 2024. In a recent interview the Finance Minister made it clear that there would not be any spectacular announcements in this current budget as it is voted on account. She mentioned “It is a matter of truth that the February 1, 2024 budget that will be announced will just be a vote on account because we will be in an election mode. So the budget that the government presents will just be to meet the expenditure of the government till a new government comes to play,”. However, The Corporates have specific expectations from the Government’s interim budget as it plays a crucial role in shaping the economic environment in which businesses operate. These expectations may vary depending on the industry, the size of the organisation, and its strategic goals.

One prominent request among them is to extend the preferential corporate tax rate for new manufacturing firms.  Presently, pursuant to Section 115 BAB, newly eligible manufacturing companies registered from October 1, 2019, onwards have the option to choose a reduced tax rate of 15%. However, in the 2023 Budget, this favourable corporate tax rate of 15% has been extended for manufacturing companies established on or before March 31, 2024. The extension of the concessional tax rate provides an advantageous opportunity for investors currently in the process of establishing or considering India as a potential investment destination.

Next in line is the extension of tax advantages for startup companies.  Section 80-IAC of the Income Tax Act grants startups a tax holiday, allowing them to seek exemption from income tax on their business income for a continuous period of three years within the first decade of their incorporation. To qualify for this tax holiday, startups must fulfil various conditions, including being incorporated on or before March 31, 2024. Aligning with the government’s commitment to fostering startup growth, there is a proposal to eliminate or extend the closing date for claiming the tax holiday, providing further support for a few additional years.

The next expectation revolves around addressing the adverse effects of double taxation on dividends provided to shareholders. This dual taxation challenge serves as a hindrance to business investments and impacts the Return on Investment (ROI). The initial taxation on profits is followed by an additional tax in the form of personal tax rates when dividends are distributed. Investors, particularly those who have assumed the risk of capital investment in businesses, should be afforded the flexibility to smoothly withdraw profits as part of the business operation, without the burden of taxes on two separate occasions.

The subsequent expectation involves the consideration of specific deductions in the new tax regime. In the Interim Budget for 2024, the government should consider allowing the following deductions/exemptions:

• Interest on Home Loan: In the previous tax regime, a deduction of up to INR 2 lakhs per annum was permitted for the interest paid on a home loan. Many homebuyers factored in this benefit when availing a home loan, as it contributed to reducing the overall cost. Consequently, transitioning to the new tax regime poses challenges for home loan buyers. Therefore, at the very least, an amendment to the new tax regime should extend the benefit on interest for home loans taken before a specified cut-off date.

There were widespread speculations that the personal income tax rebate might be raised from the existing Rs 7 lakh to Rs 7.5 lakh in the vote-on-account. However, A senior official from the finance ministry stated that there is unlikely to be any increase in the tax rebate under the new direct tax regime in the upcoming interim Union Budget, set to be announced on February 1.

Another government official stated that in the interim budget, the government is expected to declare an exemption from tax collected at source (TCS) on individual overseas credit and debit card expenditures, up to Rs 7 lakh per financial year.

Thus, In the context of the fiscal year 2024-25, the interim budget is expected to outline the government’s expenditure plans specifically for the initial months of that fiscal year. The interim budget serves as a temporary financial arrangement to cover essential expenditures until a new government is elected in the Lok Sabha elections of 2024 and has the opportunity to present a comprehensive budget for the entire fiscal year. It provides a means for the current government to seek parliamentary approval for routine and essential expenditures, ensuring the continuity of government functions during the transitional period.