NEW DELHI — PricewaterhouseCoopers has forecasted that India’s economy will have a 7.1 percent annual growth rate for 2016/2017 financial year. India has an intricate taxation system to administer the economy. Demonetization and the new GST (Goods and Services bill) to make India a better functioning economic unit, is heralding the dawn of a new economic system. It is essential that the taxation system in India benefits individuals from all socioeconomic backgrounds, especially given the rising population.
The Union Budget of 2017 introduces an even more effective and progressive taxation system in India. This agenda is aimed at galvanizing key sectors and aspects of the economy like healthcare, education, farming, the rural population and the youth. It also aims to boost real incomes for farmers in rural areas and reduce poverty by 2019.
After India gained independence in 1947, it became vital to address the proliferating rate of poverty by implementing a progressive means of taxation to reduce the burden on the poor. High-income groups needed to pay a larger proportion of income tax.
The tax revenue is vital for providing the government with funds for spending on infrastructure and social policies. However, high-income disparities and income tax evasion have slowed the administration, efficiency and generation of equity for the country.
The new plan halves the income tax rate from 10 percent to five for individuals earning 250,000-500,000 rupees annually. Rebate values are now also halved to 2,500 rupees a year, with those earning less than 350,000 rupees not needing to pay it any longer. Those earning more than five million rupees per annum (USD$75,000) will need to pay a 15 percent proportion of their income as tax.
The comprehensive Union Budget plan, spearheaded by the finance minister Arun Jaitley, also encompasses the need for digitization of payments, the provision of more financial services to lower income groups, further rural electrification and more reliable access to the internet. The Union Budget has brought hope for a new and reformed taxation system in India. Excise duties like transaction fees can be bypassed by lower income groups.
Under the Union Budget Plan, the government will spend on garnering credit from the tax and interest waivers. The issue of debt among farmers will be addressed through this reformed taxation system in India.
Many of Prime Minister Narendra Modi’s welfare initiatives are also a very prominent part of the plan. The Swacch Bharath Abhiyan (Clean India Campaign) will combat open defecation and sanitation issues and the Garib Kalyan Yojna (Poor Welfare Plan) will receive ample amounts of funding from the tax revenue.
Moreover, to bolster the domestic business climate by enabling startups, ventures and risk, there will be a tax exemption on profits for new businesses for seven years. According to the new taxation system in India, businesses with an annual turnover of 50 million rupees (USD$7.5 million) will be taxed at 25 percent, down from 30. To encourage more investment, capital gains tax is being reduced so that businesses have a higher propensity to invest.
The reformed taxation system in India will help achieve many development and economic objectives for the following fiscal year. The poor can benefit from a progressive means of taxation system in India that will increase their standards of living in the years to come.
– Shivani Ekkanath