Nirmala Sitharaman will announce her first budget today, outlining the priorities of Prime Minister Narendra Modi in his second term after a massive election victory. Nirmala Sitharaman, India’s first full-time woman finance minister, is widely expected to boost spending and provide tax relief in the much-anticipated Union Budget.
The Budget poses a number of challenges for the re-elected National Democratic Alliance (NDA) government, ranging from a slowdown in the economy to weak consumption and shrinking tax collections. Economists say the Finance Minister needs to announce measures that spur growth without straining expenditure much.
Set up in November 2017 by then Union Finance Minister Arun Jaitley, the six-member task force to frame a direct tax law that is more in consonance with the present realities of Indian economy. The task force was given an extension a day after the Narendra Modi government won it second term and a new deadline of July 31 was set.
The existing direct tax law deals with personal income tax, corporate tax and other direct levies such as the capital gains tax. Most of the indirect taxes are now covered under the goods and services tax (GST) that was rolled out in July 2017.
The new direct tax law is expected to widen the direct tax net by bringing in more assessees under its coverage. The corporate tax is likely to be lowered to 25 per cent. This will give a boost to businesses, as the global experience suggests.
It may also propose to phase out tax exemptions that have led to litigation. A corporate tax rate of 25 per cent is already available since 2018-19 for corporate houses with sales less than Rs 250 crore.
When planned originally by the Manmohan Singh government, the direct tax code bill proposed to give tax exemption up to income of Rs 2 lakh a year and a 10 per cent tax on income up to Rs 5 lakh. But over the years, the Modi government has incorporated many proposals of the direct tax code.
The income tax exemption is available to an individual earning up to Rs 2.5 lakh a year. In the interim budget in February, a further rebate was offered on income up to Rs 5 lakh. Simply put, a person earning up to Rs 5 lakh a year need not pay any income tax.
One key consideration before the direct tax code task force is to improve tax compliance. With the Modi government focusing on digital economy as the way forward, the direct tax code is likely to offer incentives for the same.
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