In its meeting held early this month, the Goods and Services Tax Council decided to set up a Group of Ministers (GoM) to suggest “how to go about” the GST compensation cess, which is levied on luxury, sin and demerit goods after the loans taken to meet the revenue shortfall of states during Covid-affected years are repaid. Reports that the Group of Ministers will be “reworking its nomenclature” suggest policymakers intend to continue the levy even after the March 31, 2026 deadline, when it is supposed to be withdrawn as per the subsisting arrangement. Why should the levy be continued? Following the Constitution Amendment Act, 2016, which introduced the GST, the Union Government also introduced the GST Compensation Act, 2017. It...
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Category: Taxes & duties
GST cess extension: Is it Justified Beyond 2026?
With loans likely to be repaid by January 2026, the question arises—can the continued levy of the cess be logically justified in light of buoyant tax collections In its meeting held early this month, the GST Council had decided to set up a Group of Ministers (GoM) to suggest ‘how to go about the GST compensation cess, which is levied on luxury, sin and demerit goods such as automobiles, aerated drinks and tobacco, after the loans taken to meet the shortfall in revenue of states during Covid-affected years are repaid. The GoM will be headed by Union Minister of State for Finance Pankaj Chaudhary and include members from states. The statement ‘how to go ……’ together with reports suggesting that...
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FM bows down to real estate lobby
In the Union Budget for 2024-25 presented on July 23, 2024, Finance Minister Nirmala Sitharaman reduced the tax on long-term capital gains (LTCG) from sale of Real Estate (Physical) and Physical Gold from 20 percent with the benefit of indexation to 12.5 per cent but without the indexation benefit. However, owners of old houses acquired before 2001 (ancestral property) will continue to get indexation benefit. For the purpose of deciding that the capital gain is long-term, the holding period for both the asset classes is 24 months. Whereas, for Physical Gold, it is down from 36 months earlier, in case of Real Estate (Physical), it remains unchanged. The benefit of indexation allowed a person to adjust the cost of her...
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Reforming the personal income tax regime
In the Budget for 2024-25, Finance Minister has made the ‘new regime’ of personal income tax more appealing, while continuing to rationalise the capital gains tax structure In the Union Budget for 2024-25, Finance Minister Nirmala Sitharaman has endeavoured to make the ‘new regime’ of personal income tax (PIT) a bit more attractive besides continuing the process of ‘rationalising’ and ‘simplifying’ the structure of capital gains tax (CGT) that was started in her budget for FY 2023-24. Sitharaman had introduced the new PIT regime in the Budget for 2020-21. Even while retaining a 5 per cent tax for annual income in the Rs 250,001-Rs 500,000 range (as under the old regime before 2020-21), on income higher than Rs 500,000, the...
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Income tax amendment promises relief for MSMEs
The biggest problem faced by small enterprises is delayed payment of their dues by large enterprises as it results in a shortage of working capital severely impacting their production An amendment to the Income Tax Act, introduced through Finance Act 2023, and effective from April 1, 2024 stops businesses from claiming tax deductions for payments beyond 45 days to the Micro, Small and Medium Enterprises (MSMEs) for supply of goods and services has caused much consternation. The MSMEs are ancillary units engaged in the production, manufacturing and processing of goods and commodities (mostly intermediate goods) which are supplied to large enterprises or master units. These units operate on a small scale and are further categorized into micro, small and medium enterprises...
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Rationalise and simplify GST
The GST Council has to make crucial decisions regarding inclusion of petroleum products and streamlining tax slabs to fortify the robustness of the GST system A Group of Ministers (GoM) set up by the GST (Goods and Services Tax) Council is currently reviewing the new tax regime with a focus on ‘simplification’ and ‘rationalisation’ as key objectives. GST is a single nationwide tax that subsumes within it more than a dozen taxes of the pre-GST era. Applied all over India, it has a provision of set-off for tax paid on inputs also known in common parlance as input tax credit (ITC). This makes the system free from the cascading effect of tax on tax besides encouraging businesses to report all...
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Establishing a robust and resilient tax system
The Modi Government has successfully addressed all key aspects to ensure the strength and resilience of the tax system The robustness of the tax regime in a country can be tested by looking at its ability to engineer and sustain an accelerated growth in its GDP (gross domestic product); help the government in garnering tax revenue commensurate to growth in GDP and be ‘progressive’ in as much as it collects more taxes from those who can afford to pay more while imposing less burden on those who can’t. Look at the growth in real GDP which is GDP at constant prices. After a decline of 5.8 percent during 2020-21 caused by Corona – pandemic, growth in real GDP rebounded to...
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Aim at a tax-to-GDP ratio of 20 per cent
Buoyant tax collections hold the key to keeping up the tempo of investment in building infrastructure and funding welfare schemes In the past, invariably, the revised estimate (RE) for the relevant financial year (FY) fell short of the budget estimate (BE). During the last two years, the position has reversed with RE exceeding the BE. In fact, the trends during the first six months of the current FY point toward the Modi – government doing a hat–trick. Look at the gross tax revenue (GTR) which includes gross direct tax revenue (GDTR), GST collection, central excise duty (CED) and customs duty (CD) – net of refunds. During 2021-22, the BE for GTR was Rs 22,20,000 crore. Against this, the RE (mentioned...
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Tax reforms are yielding good results
The Income Tax Department has successfully used technology to reach out to the assesses in non-intrusive ways A major factor that has helped the Modi – government keep up the tempo of investment in building infrastructure and other development activities and continues with welfare schemes in desired measure without causing any slippage in fiscal deficit target has to do with a steep rise in tax collection. The gross tax revenue (GTR) – including total direct tax collection, proceeds from Goods and Services Tax or GST, customs and excise duty – net of refunds – surged from around Rs 21,11,000 crore during the financial year (FY) 2019-20 to Rs 30,50,000 crore during 2022-23 – an increase of about 50 per cent....
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GST is undergoing metamorphosis
There is a surge in GST collections, which has proved sceptics wrong and even surpassed the expectations of the authorities Only a couple of years ago, top officials in the Department of Revenue used to gloat over a collection of GST Rs 150,000 crore if achieved in any given month. They couldn’t even imagine that collection of Rs 150,000 crore consistently every month in a year would ever be possible. But, this happened during 2022-23, when the department garnered a total of Rs 1800,000 crore. During the current year, it is aiming at a target of Rs 2000,000 crore. A major factor behind this is an increase in nominal GDP during 2022-23 by 15.9 per cent (from a tax collection...
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