By CA. Bharat Kanani 

In the Modi 3.0 era, finance minister Nirmala Sitharaman is all set to present her Union Budget in the Indian Parliament on July 23, 2024. Indeed, it will be an opportunity for the government to present its economic vision for the next five years and also chart the nation's socio-economic growth in the years to come.

Taxation laws and policies in India are considered to be one of the most complex regulations in the world, and there exist many loopholes currently which get smartly exploited by the citizens and corporate entities. Hence, there is a dire need to simplify many existing laws and that is the need of the hour. In the forthcoming Budget, the finance minister should eliminate many harsh penal provisions and complex appeal provisions in the interest of individual income tax payers. Most of them perhaps do not fully understand the complexities of Indian income tax laws and regulations. Ironically, in a bid to save income tax and penal charges levied by the Indian income tax authorities, individual taxpayers often end up paying hefty fees to tax consultants, lawyers, chartered accountants, etc during their tax appeal-process. It is a paradox. And, also an unjust treatment meted out to the individual taxpayers of our country. However, large corporate groups and business entities operating on Indian soil certainly should be subjected to stringent penal provisions by the Indian income tax authorities if any Sovereign law is violated or subverted, or a loophole is exploited to evade the tax obligations. Such a strategy will undoubtedly facilitate industrialization and also bolster the nation’s economic superiority at a global level.

In the forthcoming Union Budget, Ms Sitharaman is anticipated to increase the basic income tax exemption limit for individuals, and also is likely to allow additional tax deductions to the individual taxpayers. It might widen the budgetary fiscal deficit, and one of the prudent ways to address the fiscal problem in the longer run is by privatizing State-owned industries. The Modi government has been sincerely and actively working for the past ten years on ‘minimum government and maximum governance’ motto, and thus privatizing public sector units which do not add value to the nation’s exchequer is the rational step going forward. National carrier, Air India was privatized by the Modi government, and in Q1 FY 25, the airline reported profit for the first time in the decades. Such measures invariably strengthen industrialization in the country if implemented in a proper manner.

In a country as diverse as India, the conventional tax laws of the world would not hold the ground and certain taxation reforms as a novel concept should be introduced. One of the premises which need to be thoroughly understood is the tax implications and the ultimate purpose of taxation in India. In our country, the taxation matrix is complex and hard lined, and certain tax regulations lack rationale too. In my opinion, taxation should be rooted to the cause and service the end purpose of every individual or business enterprise. Individuals should be taxed based on their consumption, and corporate entities should be taxed based on earnings. Individuals ultimately earn to ‘consume’ and business enterprises earn to ‘add’ wealth.

Such an innovative approach might change and revolutionize the socio-economic fabric of our country in the longer run. But, there is a caveat: Revolutionary measures in the financial sector should be implemented with utmost care to avoid economic shock effects. The monetary upheaval caused by demonetization, GST etc in our country is still fresh in the memory ! I am sure, the North Block on Raisina Hill in New Delhi houses many brilliant minds and stalwarts whose prudent approach will never allow the derailing of our country's economy in any circumstances.  

For individual taxpayers, the simplicity and transparency in the taxation system will certainly have a huge impact on their overall earning capacities. Certain provisions of the new tax regime can also be reviewed. The discontinuation of tax deductions under section 80U of the Income Tax Act 1961 for physically challenged people should be relooked. Government needs to have a balanced approach between capitalism and socialism for a greater good.
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Lastly, I take the theme of 18th G20 summit held in New Delhi last year as a reference and wish to see the new India as a ‘Vishwaguru’ by bringing in certain reforms in the taxation system and act as a  guiding force to the global financial sector and countries which aim to revamp and reform their taxation laws.

(The author of this article is a chartered accountant and an eminent tax consultant)