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Income tax relief, capex: Budget 2025 wishlist from Motilal Oswal Sec

Indirect tax relief, interest-free capex loans, household income boost, among 5 key expectations from Motilal Oswal for Budget 2025

Countdown begins to Feb 1: FY26 Budget set to become a hallmark document

Illustration: Ajay Mohanty

Sirali Gupta Mumbai

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Budget 2025: Indian Finance Minister Niramala Sitharaman will present the full-year Budget for 2025-26 on Saturday, February 1, 2025. Ahead of the Budget, domestic brokerage Motilal Oswal has put forward its wishlist with five key expectations from Budget 2025.
 
Reforms in indirect taxes and dividend income tax policy:
The brokerage believes that indirect taxes, levied on goods and services, are burdening as they account for 60 per cent of all tax receipts in India, the same as it was a decade ago.
 
To overcome this issue, Motilal Oswal recommends:
a) Double taxation on dividend income to be abolished by either making it tax deductible for companies or by reverting to the old system of including it only in the corporate income taxes,  
 
 
b) The government needs to articulate its intention of making Goods and Services Tax (GST) simpler by reducing tax slabs and interventions and lowering the burden of indirect taxes.
 
Make interest-free capital expenditure (capex) loans to states conditional:
Motilal Oswal believes interest-free loans for capex to states by the central government must be reviewed as many welfare schemes deployed by states do not have any economic criteria or statistical reasoning.
 
As per the brokerage, it would be useful to link such capex loans with some conditions, such as the achievement of capex by each state against its budget estimate and the ratio of welfare schemes/cash transfer/current expenditure to capital expenditure of each state.
 
The higher the former and the lower the latter, the more the state deserves capex support from the central government. Such conditions would help bring some fiscal discipline.
 
Focus on boosting household income, not consumption:
The government needs to focus on improving household income growth rather than consumption, said Motilal Oswal's report.
 
To do so, the brokerage suggests the government provide support to the construction sector, not overlook the huge informal sector such as Micro, Small, and Medium Enterprises (MSMEs), and provide non-inflationary support to the micro and small enterprises.
 
Remain on the path of fiscal consolidation and focus on capex:
The brokerage reckons that it is very likely now that the government will miss its FY25 capex target by about Rs 1 trillion. Thus, it recommends that the government continues on the path of consolidation and target a deficit of 4.5 per cent of gross domestic product (GDP) next year, with a clear preference for capex.
 
Motilal Oswal anticipates 10-15 per cent growth in capex in FY26, following a +/-5 per cent change this year (FY25). At the same time, if the government chooses to target the debt-to-GDP ratio from the subsequent years, it needs to clearly outline its target range (or point target) over a longer period.
 
The government should accept its limitations in incentivising corporate investments:
The government needs to recognise its limitations in pushing private corporate investments higher. During the past five years (FY20-FY24E), as per the brokerage.
 
Government capex has recorded a compound annual growth rate (CAGR) of 16 per cent, household investments have risen by 12 per cent, and corporate investments have experienced a CAGR of only 6 per cent. 

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First Published: Jan 31 2025 | 1:23 PM IST

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