Budget 2024: Make personal tax regime attractive to chart path for Viksit Bharat

The government’s priorities are (or should be) to create more jobs, make interventions that will help manage inflation, address income inequality, and put more money in the hands of the people to spend more to keep the economy buzzing.

If India aspires to be a developed economy by 2047, it needs to have a sustained period of high growth. This needs a transformation in technology and innovation. There is a correlation between personal income tax and building an entrepreneurial culture. The startup ecosystem has put India on the world map of innovation and entrepreneurship, but we need to keep it attractive for the bright minds who are venturing into entrepreneurship to make India their base and strengthen the ecosystem. The personal tax burden for startup entrepreneurs should be eased to make it attractive for them to focus on making India the world leader in innovation and the hub for innovative technology development.

Enough resources 

With the gross domestic product (GDP) growth of over 8% in 2023-24, buoyancy in total tax collections and the significant amount of the Reserve Bank of India dividend, the government has the resources at its disposal for measures aimed at putting more money in the hands of the people. Given the better performance of the industry from a supply side, higher disposable income may not impact inflation. Therefore, it would be prudent to rationalize the tax rates to make it more attractive. It could be tempting to collect more personal taxes, but the impact can be far greater if more money is left in the hands of the taxpayers for higher spending, savings and investments. Therefore, as a principle, the time is right to revise personal tax slabs. The government will end up collecting more taxes due to the greater buoyancy in the economy without having to increase personal taxes.

Creating more white-collar jobs and taking India up the value chain of service exports would generate more income for Indian taxpayers and, consequently, higher tax collections for the government. As a country, we need to make our population more employable and more skilled to go up the value chain and thereby increase the value contribution of the individuals. If India aspires to be a global financial hub, then a simplified and low-tax regime is necessary to attract and retain talent. Creating more senior-level roles in India and, therefore, a complete ecosystem for financial services would help create jobs and generate higher personal incomes for individuals and, consequently, higher taxes for the government. An attractive personal tax regime will help in attracting lost talent back to India.

Budget expectations

At a micro level, we expect the government could propose the following in the Budget 2024:

1. Overhaul the capital gains taxation system guided by the need for rationalization as also the much-needed additional revenue. In the shifting around, some exemptions may go and the capital gains tax rates could change
2. Take the leap towards a unified tax regime by significantly enhancing the maximum amount of income exempt from tax and eliminating most deductions.
3. Leverage the inflows of money into the stock exchange by additional direct or indirect tax.

In its third innings, whether the government goes in for a tax strategy refresh we will get to know on 23 July. It is well known that the nation awaits a blockbuster, commoner-friendly budget that will bring it happiness matching the levels of happiness that we experienced collectively—both the government and the people of India—when India won the ICC Men’s T20 World Cup. Madam FM, a winner please!

Sonu Iyer is partner and national leader–people advisory services at EY India.