10 Taxes Affected by Budget
Taxes are the most crucial and most significant source of revenue for the Government. The Government uses the revenues generated from taxes to provide basic facilities to its citizens and the nation's overall development. For example, construction of roads, buildings, infrastructure, public healthcare facilities, providing various subsidies, etc.
However, to ensure an adequate balance between revenue generation and financial pressure on the public, the Government makes several changes to the existing tax structure from time to time. The Government usually makes these changes while presenting the Union Budget of India.
Every year, on the first of February, the Finance Minister of India presents this Union Budget in Parliament. Also known as the annual financial statement of India, the budget contains the details of the revenue sources and expenses to be undertaken by the Government during the applicable financial year.
This article will discuss how the Union Budget can affect various taxes in India. But first, let's learn about the existing tax structure of our country.
The tax structure of India
India has a well-structured, three-tier federal taxation system. It consists of the Central Government, various State Governments, and local municipal bodies. Coming to taxes, there are two types of taxes in India – Direct Taxes and Indirect Taxes.
Direct taxes are levied directly on individuals and corporate entities. These taxes are non-transferable. The Central Board of Direct Taxes (CBDT) is responsible for governing and regulating direct taxes in India.
Income tax is the most common form of direct tax in India. It refers to the tax individuals have to pay against their annual income. Other direct taxes in India include wealth tax, capital gains tax, corporate tax, gift tax, and property tax.
Indirect taxes are imposed on the sale and purchase of products and services. These taxes form the most significant source of revenue for the Government.
Some examples of indirect taxes in India include service tax, sales tax, value-added tax, excise duty, customs duty, securities transaction tax, stamp duty, and entertainment tax. Few of these taxes – such as sales tax, value-added tax, service tax, etc. – were replaced with a single tax known as the Goods and Services Tax (GST) in 2017. However, other indirect taxes are still operational.
How does the budget affect these taxes?
Now, let's learn how the Union Budget can impact these taxes:
· Income Tax
All earning citizens of India must pay income tax as per the applicable tax rate. These tax rates are mentioned in the income tax slab decided by the Government of India. As per the existing income tax slab, the lowest tax rate is 5%, while the highest is 30%.
The Government can propose changes to the income tax slab while presenting the Union Budget. These changes can come into effect after Parliament's approval and change income tax rates. Besides, any changes in the tax exemption rules can also impact the payable income tax.
· Capital Gains
Capital gains taxes apply to gains made from equity investments, such as stocks and mutual funds. Different asset classes may attract different tax rates. The Government may propose changes to the capital gains tax structure in the Union Budget.
· Customs duty and excise duty
Customs duty and excise duty are applicable on import and export of goods. The Government may increase or decrease these duties in its annual budget.
· Goods and Services Tax
There are four GST rate brackets under which goods and services are taxed in India. The Government can make changes to these tax brackets and the list of products and services under them.
· Securities transaction tax
Securities Transaction Tax (STT) applies to the values of securities traded through a recognised stock exchange in India. As of now, the applicable STT is 0.1% for delivery-based equity trading. The Government can change the STT rate or remove it in the upcoming Union Budget.
The Government usually increases tax rates when the fiscal deficit rises to unacceptable levels or a shortage of funds. But usually refrains from making radical changes to the taxation system until there is a strong need for them.
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