AT THE HEART of Finance Minister Nirmala Sitharaman’s decision to extend an income tax largesse seems to be an idea to build trust between the government and the honest citizen taxpayers — a whopping 1.75 crore of them.
In a country, which has just over 10 crore taxpayers, the intent to simplify the tax regime with lower TDS/TCS compliances, raise the income tax rebate limit and rejig the tax slabs, has been to repose trust in the complying taxpayer.
In the Budget, Sitharaman increased the income tax rebate limit to Rs 12 lakh from Rs 7 lakh, and rejigged tax slabs such that the highest 30 per cent I-T kicks in only at annual incomes over Rs 24 lakh. Earlier, the 30 per cent tax was applied at incomes over Rs 15 lakh a year itself.
This proposal did not make a sudden appearance this year. It was actively deliberated upon ahead of the Budget for 2024-25 presented in July last.
During the pre-Budget consultations in December-January, officials said it was felt that reposing trust in honest and compliant taxpayers was necessary to send across a message of not just always taking from them, but also rewarding them. With this trust building exercise, the government hopes to address the fault lines in a slowing economy, with stagnant wage growth and middling private investment. A positive nudge to people — who may spend, save or invest — will help push growth in the medium-term, it was felt.
“There is a gradualism. There was a 20 per cent slab earlier and then 30 per cent. Now, we have introduced 25 per cent also…this benefits everyone of the taxpayers because whatever benefits come from the slabs, gets transmitted across…we expect that all that money which they get, it comes back to the economy, in either consumption, savings or investment, in whatever way they choose to do,” Finance Secretary Tuhin Kanta Pandey said.
There is also a marked shift towards simplifying the income tax law and its provisions as is proposed through the new income tax Bill, which Sitharaman said will be brought next week in the ongoing session of the Parliament. It is expected to simplify the language and provisions for both the taxpayers and tax administration, she said. The lower TDS(Tax Deducted at Source) or TCS (Tax Collected at Source) compliances, which had been levied for more categories over the years, also signal a shift towards a belief that the buoyancy will increase on its own with higher economic activity and growth rather than making it a route to capture the transactions outside the tax net to expand the tax base.
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Given the revenue foregone on account of the change in income tax slabs and the hike in tax rebate, the government has assumed a moderate tax buoyancy of 1.42 for the next financial year 2025-26, from 2 in 2024-25 and 2.65 in 2023-24. This is expected to pick up as the economic growth gains momentum in the coming years, officials said.
The move towards easing compliance and litigation burdens for taxpayers in the Budget aligns with the government’s objective of “trust first, scrutinise later”. “Trust” and “deregulation” had also featured prominently in the government’s Economic Survey 2024-25, presented on Friday.
Asking government agencies to set the agenda for building trust, Chief Economic Advisor V Anantha Nageswaran in the Survey had said that for a Viksit Bharat by 2047, it is imperative to wipe out the “trust deficit” in the country. The Survey said “getting out of the way” is not easy for societies like India’s and “deregulation” is crucial. “…‘get out of the way’ and trust people, we must, for we have no other choice,” the CEA had said.
