The Union Minister of Finance has recently presented the Budget for the fiscal year 2020-21. Important macroeconomic indicators and changes in taxation in India has been laid out in the Budget.
Macroeconomic Indicators
According to the Budget report, there is a projected nominal growth of GDP at 10% for the 2020-21 fiscal year. The term ‘nominal GDP’ refers to an economic evaluation that includes current prices within its calculation. Simultaneously, the fiscal deficit is estimated to be 3.5% of GDP for 2020-21, which marks a slight deviation from the 3.3% estimate for FY20.
The fiscal deficit refers to the variance between a government’s revenue receipts, non-debt capital receipts (NDCR), and total expenditure. A deficit arises when a government accumulates lesser funds in relation to its total expenditure. Based on the Fiscal Responsibility and Budget Management Act established in India, the recommended fiscal deficit should ideally be 3% of GDP.
The increase in the deficit estimate results primarily from a shortfall in revenue collection. In response, the government has reduced expenditure on various items. For instance, budget estimates for food subsidies were previously over ₹1.84 lakh crore, but have now been reduced to ₹1.08 lakh crore.
State of the Economy
India has attained the position of the fifth largest economy worldwide in terms of GDP. During 2014-19, India’s economy saw an average growth of 7.4% while maintaining an average inflation rate of approximately 4.5%.
In regard to poverty alleviation measures, a significant accomplishment has been that 271 million people were lifted out of poverty during 2006-16. Furthermore, India’s Foreign Direct Investment (FDI) saw a remarkable rise to US$ 284 billion during 2014-19 from US$ 190 billion during the preceding five years.
In terms of technological advancements, India has seen substantial growth in areas such as Analytics, Machine Learning, robotics, Bioinformatics and Artificial Intelligence. Another noteworthy fact is that India now has its most significant number of people in the productive age group (15-65 years).
Changes in Fiscal Policy
A significant policy change has been the reduction in Central Government debt from 52.2% (in March 2014) to 48.7% of GDP (as of March 2019). Additionally, the 15th Finance Commission has decreased the state share of central taxes by one percentage point to 41%. This shift has resulted from the formation of new Union Territories of Jammu and Kashmir, and Ladakh, which will now receive funds from the Centre’s share.
Taxation Changes
There have been some major changes regarding taxation policies. The Dividend Distribution Tax (DDT) has been removed which means that companies will not pay DDT on the dividends they distribute. Instead, the dividend income will be part of the recipient’s taxable income and taxed at the applicable rate.
In relation to Income Tax, a new tax regime with new slabs and lower income tax rates has been introduced. However, this new regime will be optional, allowing individuals to continue paying their taxes according to the old regime while availing deductions and exemptions.
An important change has also been brought about concerning Corporate Tax. A concessional corporate tax rate of 15% will be extended to new domestic companies in the manufacturing and power sectors.
The issuance of a Unique Registration Number to all charity institutions will simplify tax compliance. The Budget also introduces the ‘Vivad Se Vishwas’ scheme aimed at reducing litigations related to direct taxes with a deadline of 30th June, 2020. Finally, a 100% tax exemption has been allocated to interest, dividend and capital gains income on investment in infrastructure and priority sectors by the Sovereign Wealth Fund of foreign governments till 31st March, 2024.