Economy
Mint Explainer: Key policy changes in Nirmala Sitharaman’s first stint as FM
Summary
- Sitharaman, a key cabinet minister in the new government, made a host of important policy changes in her first five years as FM, such as raising the income-tax-rebate ceiling and tax-exemption limit, cutting GST on a host of items, and decriminalising various part of company law.
New Delhi: The new NDA coalition government will have to shift gears quickly as the Union budget for FY25, scheduled to be presented in about a month, will set the direction of future policies. Among the main challenges are improving living standards and the ease of doing business in India while ensuring macroeconomic stability amid global uncertainties.
Mint takes a look at some of the key policy changes brought in by Nirmala Sitharaman, an influential voice in the new cabinet, during her first five years as FM. Sitharaman is tipped to retain the finance portfolio in the new government.
The income-tax rebate
The union budget for FY24 raised the tax-rebate ceiling under the new personal income tax regime from ₹5 lakh to ₹7 lakh, easing the burden on the middle class. Earlier, the ceiling was ₹5 lakh in both the old and new regimes.
Including the ₹50,000 standard deduction, which was also introduced in the same budget, those earning up to ₹7.5 lakh do not have to pay any income tax under the new regime. The new personal income tax regime is now the default option for all, but you can still choose the old regime.
Also read: India needs greater sophistication in manufacturing, says FM Nirmala Sitharaman
Under the new regime, the number of income slabs was reduced from six to five, and the tax-exemption limit was raised from ₹2.5 lakh to ₹3 lakh. The surcharge on income tax was also rationalised in the new tax regime in the FY24 budget.
Faster income-tax refunds
With a revamped portal for filing tax returns, the Income Tax department can process returns filed for assessment year 2023-24 (AY23-24) in about 10 days, compared to 82 days for AY19-20 and 16 days for AY22-23, the Central Board of Direct Taxes (CBDT) said last September. Also, taxpayers can now update their returns if they missed anything in previous filings.
Record GST collections
The formalisation of the economy and leveraging technology in taxation helped the government make tax administration more efficient and increase the resources available to the exchequer. The combined monthly GST collection of the union government and states in April was a record at ₹2.1 lakh crore, marking an annual growth of 12.4%. Higher revenue receipts for states has also helped bolster fiscal relations between them and the union government.
Also read: Sitharaman, Manmohan Singh in war of words over state of Indian economy
GST rate cuts
The Goods and Services Tax (GST) rate was reduced on a host of items in the past five years, during which Sitharaman was also chairperson of the GST Council. These include cancer drugs (from 12% to 5%), orthopaedic appliances (from 12% to 5%), food served in movie halls (from 18% to 5%), biodiesel for blending with diesel (from 12% to 5%), and electric vehicles (from 12% to 5%). Electric buses with a capacity of more than 12 people were exempted from GST.
Also read | New fund transfer norms led to savings: Finance minister Nirmala Sitharaman
Decriminalisation of company law
The ministry of corporate affairs decriminalised over four dozen procedural and technical violations of the Companies Act in 2019 and 2020, bringing relief to businesses. These cases are now adjudicated by the Registrars of Companies (RoCs) under the ministry, which are staffed by members of the Indian Company Law Service.
In the first round in 2019, the Companies Act was amended to decriminalise 16 technical and procedural breaches, such as failure to file annual returns and issuing shares at a discount, which do not harm the public interest. Until then, these offences attracted a penalty, imprisonment, or both. A year later, the law was amended again to decriminalise 35 more offences.
Easier compliance and lower penalties for small firms
In September 2022, the ministry of corporate affairs defined all businesses with paid-up capital of up to ₹4 crore and sales of up to ₹40 crore as small companies. The earlier definition was companies with up to ₹2 crore of paid-up capital and ₹20 crore of sales. The change meant that about 80% of all active companies were eligible for lower penalties and a simplified compliance regime, Mint reported on 26 September 2022.
Also read: Policy stability key for markets, says Nirmala Sitharaman amid rising volatility
Sitharaman’s first five years as finance minister also saw refinements to the Insolvency and Bankruptcy Code (IBC) to make it more efficient, reforms in the preparation and presentation of the union budget, faceless income-tax assessment and appeal, centralised registration and winding up of companies, and a new system of ‘file and forget’ for company-law-related filings to improve the ease of doing business. The finance minister also steered the economy during the pandemic, with several stimulus packages and policy reforms aimed at ensuring credit for businesses and support for vulnerable sections of society.
