BBB Insider
Thursday, January 11, 2024 at 10:06 pm IST
The Interim Budget is presented by the ruling government in Parliament in a year when there is insufficient time to present a complete budget or when elections are due in the same year. It is the incoming government that is responsible for formulating the full budget.
Union Budget 2024: Finance Minister Nirmala Sitharaman hinted at a restrained approach for the upcoming Interim Budget during a recent event organized by the industry chamber CII. With the Finance Minister downplaying expectations for “spectacular” announcements and considering the BJP’s recent electoral successes in key states, it suggests that the budget, set to be unveiled on February 1, may not feature expansive populist schemes. The political context and the Minister’s cautious remarks imply a more pragmatic and measured fiscal approach, possibly prioritizing stability over ambitious initiatives.
As Finance Minister Nirmala Sitharaman gears up to present Budget 2024 on February 1, individuals eagerly anticipate unravelling the intricacies of financial terms introduced during the annual budget speech. One such term that often prompts questions is ‘direct tax.’ Let’s delve into its definition, types, and significance.
Budget: Definition of Direct Tax:
Direct tax is a straightforward concept—it’s a tax paid directly by individuals or organizations to the government based on their earnings. In simpler terms, if you’ve earned money, you’re obligated to pay this tax. Beyond the widely known income tax, direct tax encompasses various other forms, including gift tax, wealth tax, and capital gains tax.
Categories of Direct Tax:
- Income Tax:
- Levied on wages or income generated, income tax follows predefined slabs to determine the tax amount based on individuals’ earnings.
- The income tax system is designed to create a progressive structure, where those with higher incomes contribute a larger proportion of their earnings to support government functions and public services.
- Capital Gains Tax:
- Paid on the income derived from selling assets or investments, this tax applies to the profits made. It specifically targets the profits earned through such transactions.
- When individuals or entities sell assets like real estate, stocks, or other investments at a gain, they are subject to Capital Gains Tax. The tax is calculated based on the capital appreciation or the positive difference between the selling price and the original purchase price of the asset, influencing investment and financial decision-making.
- Corporate Tax:
- Applicable to both domestic and foreign companies, corporate tax is imposed on revenue generated through diverse means, such as asset sales or service provision. It represents a direct tax on a company’s profits, influencing the overall financial performance.
- The tax is calculated based on the company’s taxable income, which includes profits from business operations. Corporate Tax is a crucial source of government revenue and plays a significant role in shaping the economic landscape by influencing business decisions, investments, and competitiveness.
- Wealth Tax:
- Levied on property ownership and market value, wealth tax is applicable to real estate owners, irrespective of whether the property generates income.
- It serves as an annual tax on the overall net wealth, encouraging equitable distribution of economic resources. The tax rate is determined based on the assessed value of owned assets, providing a mechanism to address wealth inequality. While Wealth Tax has been a subject of policy debates, some countries have abolished it, emphasizing alternative approaches to address economic disparities.
- Estate Tax:
- Also known as inheritance tax, estate tax is calculated based on the value of the estate left behind after an individual’s demise.
- This tax aims to collect a percentage of the estate’s value before it is passed on to the heirs. The rate is determined by the overall worth of the assets, including real estate, investments, and other possessions. Estate Tax is designed to address intergenerational wealth transfer, ensuring a contribution to public funds from inherited wealth.
Significance of Direct Tax: Direct taxes play a pivotal role in national revenue generation.
- Revenue Generation: Direct taxes, including income tax and corporate tax, contribute significantly to the national exchequer, forming a substantial portion of government revenue.
- Wealth Redistribution: By taxing individuals and corporations based on their income and profits, direct taxes help redistribute wealth, promoting a more equitable distribution of resources.
- Funding Public Services: The revenue generated from direct taxes is crucial for funding essential public services such as healthcare, education, infrastructure, and social welfare programs.
- Economic Stability: Direct taxes provide a stable source of income for the government, aiding in economic stability by ensuring a consistent flow of funds for public expenditures.
- Progressive Taxation: Direct taxes often follow a progressive taxation system, where higher-income individuals are taxed at higher rates. This approach promotes social justice and addresses income inequality.
- Encouraging Fiscal Discipline: Relying on direct taxes encourages fiscal discipline as the government needs to justify tax expenditure and ensure optimal use of public funds.
- Control Inflation: Direct taxes can be used as a tool to control inflation by influencing disposable income levels and overall demand in the economy.
- Long-Term Development: The revenue collected through direct taxes can be directed towards long-term development projects, fostering economic growth and infrastructure improvement.
- Deterrence for Tax Evasion: The direct taxation system, when effectively enforced, acts as a deterrent against tax evasion, ensuring compliance and fair contribution from taxpayers.
- Global Competitiveness: A well-structured direct tax system enhances a country’s global competitiveness by providing a stable fiscal environment and attracting foreign investments.
New Delhi Witnesses Robust Growth in Direct Tax Collections for 2022-23 Fiscal Year
In a promising development, net direct tax collections in New Delhi surged by an impressive 18 percent, reaching Rs 16.61 lakh crore during the fiscal year 2022-23. This notable increase surpassed the revised estimates (RE), showcasing the resilience of the economic landscape.
The gross collection of direct taxes, a crucial financial metric before adjusting for refunds, displayed robust growth for the fiscal year 2022-23. The figures stood at an impressive Rs 19.68 lakh crore, marking a substantial growth of 20.33 percent compared to the gross collection of Rs 16.36 lakh crore recorded in the previous fiscal year 2021-22.
The finance ministry released these encouraging statistics, highlighting the buoyancy in direct tax collections and signalling positive economic momentum. Such robust growth in direct tax collections is indicative of a thriving fiscal environment, reflecting the financial health of both individuals and businesses in New Delhi.
As the nation navigates economic nuances, these strong figures in direct tax collections underscore the effectiveness of fiscal policies and revenue-generation mechanisms. The surpassing of revised estimates demonstrates the dynamic and resilient nature of New Delhi’s economic fabric, fostering optimism for continued financial stability in the foreseeable future.
Understanding direct tax becomes paramount as it influences the fiscal landscape, impacting citizens and businesses alike. As Budget 2024 unfolds, a grasp of such financial terms provides individuals with insights into the economic policies shaping their financial landscape.
Read More on: