As Finance Minister Nirmala Sitharaman prepares to present the interim Budget 2024, ICRA forecasts various modifications in taxation, pension and insurance schemes, mutual funds, and market dynamics. With the upcoming budget marking Sitharaman's sixth consecutive presentation since 2019, expectations are high for significant policy shifts, even in an interim capacity.

Given the interim nature of this budget, major announcements might be restrained due to the concurrent general elections scheduled for early this year. However, ICRA outlines several potential changes and announcements expected in the budgetary document.

Taxation: ICRA highlights market demands for the removal of the security transaction tax (STT), asserting that increased GST collections have reignited this demand. Eliminating STT is seen as a move to attract more investors to the domestic equity markets. Additionally, the report suggests addressing double taxation on dividends to alleviate the burden on companies and shareholders alike.

Pension and Insurance: For the unorganized sector, ICRA suggests a potential increase in the pension floor under the Atal Pension Yojana (APY) to enhance its appeal. To support senior citizens, the government may grant tax-free status to annuity income from the National Pension Scheme (NPS). There could also be considerations to raise the annual investment limit for pensions from Rs 50,000 to Rs 1 lakh. The separation of tax deduction for life insurance premiums under Section 80C is proposed to boost insurance product penetration, and a review of the 18% GST on health insurance policies is anticipated.

Mutual Funds: ICRA anticipates addressing the tax treatment disparity between equity mutual funds and Unit Linked Insurance Plans (ULIPs). A call for uniformity in the capital gains structure across domestic equities and mutual funds is expected, with a view to encourage compliance. However, the risk disparity between equity and other investments should be carefully considered. The report also suggests revisiting the tax changes made last year that impacted certain funds negatively.

Markets: Expectations in the market include a comprehensive policy on cryptocurrency regulation to facilitate more inclusive participation. Sovereign green bonds are anticipated to make a comeback to address funding needs for renewable energy sectors. The budget may allocate a significant capital outlay for energy transition and net-zero objectives, focusing on new-age fuels like green hydrogen, ethanol, and other biofuels.

In conclusion, while the interim nature of the budget may limit major announcements, these anticipated changes reflect the ongoing evolution of India's economic landscape and government policies. The upcoming budget is closely watched for its potential impact on various sectors and the broader financial environment.