Annual Financial Statement popularly dubbed as Budget paves a clear-cut roadmap for the economic development of the nation. Every year, the nation keenly waits for favourable announcements by the government. This year Budget 2023 is no different as the entire focus of the nation has shifted towards the possible steps the government may undertake to give a further impetus to the economy.
Strong clamour of a changed tax slab
There are credible reports about Budget 2023 that claim that the Modi government is strongly mulling on the idea to change the tax slab. With this the Union government aims to leave citizens with more spending power. Reportedly, under the new tax slab the Union government may increase the tax-free slab to Rs 5 lakhs in the alternative tax regime.
A government official said, “Policymakers are examining the possibility of increasing the tax-free slab to Rs 5 lakh in the two-year-old alternative personal income tax regime to make it attractive”.
Notably, the regime of alternate tax system was first introduced during the 202–2021 Budget. It was a move to simplify tax payment by introducing flat taxes on income slabs rather than the complex web of deductions and exemptions.
If it goes through, the increased tax-free slab at Rs 5 lakh would make the alternate tax regime more favourable to taxpayers which currently stands at Rs 2.5 Lakh. This will further help in reducing paperwork. Evidently, similar tax-free slabs under the two regimes will encourage taxpayers to opt for the alternate tax regime.
The alternate tax regime could not click among the taxpayers as the Modi government would have wanted. The data also reflects that the alternate tax regime had very few takers. Reportedly, only 10-20 % of taxpayers opted for it.
Middle class: The driver of Indian economy
Since independence, governments have been drafting budgets keeping a specified sector or class into consideration, but the middle class has been mostly left amiss. Barring a few budgets that can be counted on fingers, aspirations of the middle class have been majorly ignored by all successive governments. Evidently, saving the historic budget rolling out EWS reservation, the Modi government too has fallen short on expectations of the aspiring middle-class and neo-middle-class.
Apparently, in 2019, to make India a manufacturing hub and invite foreign investment, the Modi government substantially slashed the corporate tax. It was reduced to 17% including surcharge and cess, from 29%, for all those manufacturing companies that started their operations post October 1, 2019. There were many more proposals on this line that relied on the trickle-down effect. But these economic boasts could not give the desired boost to the Indian economy.
The nation failed to achieve the desired multiplier effect as several corporations didn’t infuse enough capital to pull the demand side. Resultantly, the demand remained in the static zone. Unfortunately, the economy was badly impacted by the onslaught of the Covid pandemic.
Rightfully, the government shifted its focus on the sustainability and livelihood of the poor and the downtrodden. The schemes like PM Gareeb Kalyan Anna Yojana and disbursement of money through JAM among other steps provided a much-needed safety net.
However, steps like Corporate Tax or PMGKAY couldn’t gallop the Indian economy at the desired pace that the nation wanted to achieve the much-touted aim of becoming a $5 trillion economy by 2024-2025.
On the contrary, the middle class is said to be the driving wheel of any economy. Any direct or indirect assistance to the middle class, immediately kick start the virtuous cycle of demand and supply. Additionally, it gives a higher multiplier effect that is hardly comprehensible in any other tax cuts.
In Budget 2023 Changing tax slabs does involve a large forego of taxes but in the end the improved demand cycle eventually surpasses the tax forego. After providing the much-needed support to other sectors and classes, the Modi government now seems to be adamant to fructify the much-anticipated demand of the middle class, that is, increase the tax-free slab.
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