Some of the recommendations made by the Direct Tax Code task force may find their way into Budget 2021-22 to be presented by Finance Minister Nirmala Sitharaman on February 1.
Increasing the rebate provided for health insurance and payment of housing loans, changes in income tax slabs, and extending the leave travel allowance scheme are being considered in order to boost consumption.
In its August 2019 report, the Direct Tax Code task force had suggested a significant widening of income tax slabs. The task force was constituted by the government to review the income tax law.
As per the panel's recommendation, income tax should be applicable at the rate of 10 percent on annual income up to Rs 10 lakh, 20 percent for income between Rs 10 and Rs 20 lakh, 30 percent for income between Rs 20 lakh and Rs 2 crore and 35 percent for income over Rs 2 crore. Currently, the peak rate of 30 percent applies to all income above Rs 10 lakh under new tax regime.
In her maiden Budget speech, Sitharaman had cut corporate tax for firms with an annual turnover of up to Rs 400 crore to 25 percent from 30 percent, covering 99.3 per cent companies.
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In 2018, the finance ministry appointed Akhilesh Ranjan, Member (Legislation), CBDT, as convenor of the task force after the retirement of Arbind Modi.
The task force was assigned to draft direct tax laws in line with the norms prevalent in other countries, incorporating international best practices, and keeping in mind the economic needs of the country.
Finance Minister Nirmala Sitharaman, in her Union Budget 2020-21 had projected gross tax collections to be at Rs 24.23 lakh crore. For 2019-20, the revised estimate for gross tax receipts was Rs 21.63 lakh crore, short of that year’s budget estimates by Rs 2.98 lakh crore. After accounting for refunds and devolution to states, the net tax collection shortfall in 2019-20 was Rs 1.45 lakh crore.
Also Read: Tax shortfall in 2020-21 likely to be around Rs 2.5-3 lakh crore
The government's fiscal deficit rose to Rs 9.14 lakh crore, about 114.8 percent of the annual budget estimate, during the first six months of the current financial year, mainly on account of poor revenue realisation.
The revenue realisation during the current fiscal suffered on account of the lockdown imposed by the government to check the spread of coronavirus pandemic.
The fiscal deficit or gap between the expenditure and revenue had breached the annual target in July this year. The government had pegged the fiscal deficit for 2020-21 at Rs 7.96 lakh crore or 3.5 percent of the gross domestic product (GDP) in the Budget.
India's Gross domestic product (GDP) is expected to contract 7.7 percent in the current financial year.