Fiscal Policy of India

1. 1. Deepayan Saha - 57
2. Tanwani Saha -58
3. Sambarta Sangram Saha - 59
4. Rounak Sanyal - 60
5. Pavel Sarkar - 61
6. Prantik Sarkar - 62
Fiscal Policy of India
Mentored By -
Prof. Semanti Deb Roy Sen

2. Different Sources of Government Receipts
A) Tax Revenue
A) Non - Tax Revenue
A) Capital Receipts
1) Direct Taxes
2) Indirect Taxes
Loans,
Borrowings etc.
Revenues from interest,
dividends and profits
Capital Receipts : a) Debt Capital Receipts - 68620.48 CR
b) Non - Dept Capital Receipts - 933651.00 CR

3. Different sources of Government Expenditure
A) Revenue Expenditure
A) Capital Expenditure
1. Planned Revenue
Expenditure
2. Non- planned Revenue
Expenditure
● Expenditure profile of Indian Government
1. States share in duties
2. Interest payment
3. Central sector schemes
4. Central sponsored schemes
5. Defence
6. Subsidy
7. Commission
8. Pension
9. Others
2017 Total Revenue : 320 Billion
Total Expenditure : 370 Billion
2018 Total Revenue : 350 Billion
Total Expenditure : 430 Billion
2019 Total Revenue : 380 Billion
Total Expenditure : 460 Billion

4. Income and Expenditure Profile in terms of 1 Paisa

5. Heads of Income and Expenditure of State Government (West Bengal)
Income ( 2019-20 Budgeted)
1. State Own Tax (65,546)
2. State own Non-Tax (3987)
3. Share in Central Capital (62396)
4. Grants from Central (32398)
5. Revenue Receipts (1,64,328)
6. Borrowings (78,384)
7. Other Receipts (350)
8. Capital Receipts (78734)
Expenditure ( 2019-20 Budgeted)
Rs Cr
1. Education (37059)
2. Rural Development (21371)
3. Social Welfare and Nutrition (19744)
4. Health and Family Welfare (11280)
5. Agriculture and allied activities (10648)
6. Urban Development (10571)
7. Police (8167)
8. Transport (6082)

6. FISCAL POLICY
Introduction
● Fiscal Policy is a part of macro economics.
● One major function of the government is to stabilize the economy.
● Keynesian economics , when the government changes the levels of taxation and governments
spending. It influences aggregate demand and the level of economic activity.
Meaning
● The word fisc means ‘ state treasury ’ and fiscal policy refers to policy concerning the use of ‘ state treasury ’ or
the government finances to achieve the macroeconomic goals.
● Fiscal policy involves the decisions that a government makes regarding collection of revenue, through
taxation and about spending that revenue.
● It is sister strategy to monetary policy through which a central bank influences a nation’s money supply .

7. Objectives of Fiscal Policy
1. Development by effective mobilisation of resources
2. Reduction inequalities of income and wealth
3. Price stability and control of inflation
4. Increasing national income
Types of Fiscal Policy
Expansionary Fiscal Policy
➢ An increase in government expenditure for goods and services
➢ A decrease in tax
➢ Some combination of two.
Contractionary Fiscal Policy
➢ A decrease in government expenditure for goods and services
➢ An increase in taxes.

8. Budget
● “ A Budget is a debited plan of operations for some specific future period ”
● Budget is also known as Annual Financial Statement of the year.
Taxation
Direct Tax Indirect Tax
Individual Income Tax & Corporate Tax Central excise ( a tax on manufacture
goods )
Wealth tax @ 2% VAT @ 12.5%
Service Tax @14%

9. Public Expenditure
● Public expenditure is spending made by the government of a country on collective needs and wants such as pension, provision, infrastructure
etc.
● Public expenditure is an important component of aggregate demand.
Public Debts
“ public debt is defined as any money owned by a government agency ”
Internal borrowings
1. Borrowings from the public means of treasury bills and govt bonds.
2. Borrowings from the central bank
External borrowings
1. Foreign investment
2. International organizations like World Bank & IMF
Implementation of Fiscal Policy
Fiscal policies refers to all those methods used by the government to influence the economy through tax rates and
government expenditures. For example, a government may decide to reduce taxes. These moves should in, in theory,
simulate the economy and thus increase aggregate demand. Such policies are called discretionary fiscal policies.
Difficulties of Implementation
1 . Time lag
2. Inaccurate information
3. Public Spending side effects

10. Types of Taxes in India
To run a nation judiciously, the government needs to collect tax from its eligible citizens, A tax is a mandatory fee or financial charge levied by any
government on an individual or an organization to collect revenue for public works providing the best facilities and infrastructure. The collected fund
is then used to fund different public expenditure programs. If one fails to pay the taxes or refuse to contribute towards it will invite serious
implications under the pre-defined law.
Be it an individual or any business/organization, all have to pay the respective taxes in various forms. These taxes are further subcategorized into
direct tax and indirect tax depending on the manner in which they are paid to the taxation authorities.
From figure 1 we could see that the taxes have been bifurcated into two types, one is the direct
taxes and other is the Indirect taxes.
1) Direct Tax – The government levy such taxes directly on an individual or an entity and it
cannot get transferred to any other person or entity. The federation which looks after the
direct taxes are Central Board of Direct Taxes (CBDT). The type of direct taxes are as
follows :
a) Income Tax – It is such a tax imposed on the income in a fiscal year. There are lot of
facets to the income tax, like taxable income, reduction of the taxable income, tax slabs,
tax deducted at source (TDS) etc. This tax is pertinent to both the companies and
individuals. There is a tax bracket called as slab where an individual have to pay the tax
depending upon their annual income.
b) Capital Gains Tax – This type of tax is payable when an individual gets a considerable
sum of money, which could be in the form of sale of any property or from an investment.
This is generally of two types namely long term capital gains from the investment made for
a period of more than 36 months and short term capital gains from the investments made
not more than 36 months.
Figure - 1

11. c) Securities Transaction Tax – This type of tax is associated with the trading on the stock market and exchange securities. This tax is levied by
combining the share’s price and the tax. All the securities traded on Indian stock exchange have this affixed with them.
d) Perquisite Tax – The perquisite tax is levied by discovering how the company acquires the perk of how the employee uses it. In case of cars, it might
be so that the company provides a car and the employee uses it for both official and personal purposes qualifies for tax, while the car used for official
purposes only is not eligible for tax.
e) Corporate Tax - The income tax a company pays from its revenue earned by, it is called corporate tax. The corporate tax also has a slab of its own,
which decides the amount of tax to be paid. There are also division within the corporate taxes which are Minimum Alternative Tax (MAT), Fringe benefit
tax, Dividend distribution tax, Banking cash transaction tax.
2) Indirect Tax – The taxes levied on goods and services are referred to as indirect taxes. The most trivial examples of the indirect taxes are sales tax,
taxes levied on imported goods, value added tax etc., the types are discussed as below:
a) Sales Tax – The tax imposed on the sale of any product is sales tax. This product can be anything produced in India itself or imported and can also
cover services provided. Sales tax was considered as one of the largest revenue producers for a number of state governments. In addition, sales tax is
imposed under both the state and central legislation.
b) Service Tax – This type of tax is associated with the services offered by an organization and with respect to the services which are offered. If the
organization is an individual service provider then the payment of service tax is made only once the bills are paid by the customer. However, for firms, the
service tax is to be paid as soon as the invoice is raised, heedless of the payment of the bill by the customer.
c) Value added Tax – VAT is imposed at all the steps of the supply chain, from manufacturers to dealers, to distributors and to the end users. The VAT
was imposed on several goods that were sold in the state itself and decided the amount of tax.
d) Customs Duty and Octroi – Anything which is imported from abroad, an additional charge is applied on it which is known as customs duty. It is
applied to all the products, which come in via air, sea or land. The intention of the customs duty is to make sure the goods traversing the state borders
inside India are appropriately taxed.

12. e) Excise Duty – The excise duty is such a tax that is imposed on all the manufactured goods or the produced goods in India. This tax varies from customs
duty as it is chargeable only on the things that are produced in India and is also called the Central Value Added Tax or CENVAT. The Central Excise Rule
framed by the Central Government of India suggests that every individual that manufactures or produces any excisable goods or products, or who stockpile
such products in a depot, will have to make payment of the duty chargeable on these goods.
f) Goods and Service Tax (GST) - The goods and services tax (GST) is a value-added tax levied on most goods and services sold for domestic
consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. It is an indirect tax which
has replaced many indirect taxes in India such as the excise duty, VAT, services tax, etc. The GST is a common tax used by the majority of countries
globally.

13. Incidence of Direct and Indirect Tax in India
What is a Tax Incidence?
Tax incidence (or incidence of tax) is an economic term for understanding the division of a tax burden between stakeholders, such as buyers and sellers or
producers and consumers. Tax incidence describes a case when buyers and sellers divide a tax burden. Tax incidence will also lay out who bears the burden
of a new tax, for instance among producers and consumers, or among various class segments of a population.
How Tax Incidence Works ?
The tax incidence depicts the distribution of the tax obligations, which must be covered by the buyer and seller. The level at which each party participates
in covering the obligation shifts based on the associated price elasticity of the product or service in question as well as how the product or service is
currently affected by the principles of supply and demand. Tax incidence reveals which group—consumers or producers—will pay the price of a new tax.
For example, the demand for prescription drugs is relatively inelastic. Despite changes in cost, its market will remain relatively constant. Before incidence
we have the Impact of taxation which is the immediate burden of taxation.
How does the Incidence/shifting of the tax takes place ?
1) Elasticity of Demand & Elasticity of Supply
Elasticity of demand/supply Producer Consumer
1) .ed More Burden Less burden
2) .ed Less burden More burden
3).es Less burden More burden
4).es More Burden Less burden

14. 2) Price – If the price of goods increases then producers tries to shift the tax burden towards the consumers.
3) Nature of the tax – The taxes can be of two types. One is the direct tax and other is the indirect tax. For direct tax it would include the income tax where
the impact and incidence are the same.
Even tax on profit, land tax and wealth tax is where the individual cannot put an incidence to the tax, i.e. they cannot shift the tax onto the consumers.
On the other hand the taxes relating to commodity tax is where the taxes such as excise duty comes forth which is enacted in manufacturing and
production, here the incidence takes place from the producer to consumer. Also while buying any product the sales tax is imposed where the producers
shifts the burden onto the consumer, as well as we have the miscellaneous other taxes such as electricity duty, stamp duty and motor vehicle tax. Even the
imports and the exports consists of the customs duty. However these taxes are imposed in some of the goods but after the imposition of GST in 2017,
majority of the commodity tax falls under the Goods and Service Tax.
Direct Tax Impact of Tax Incidence of tax
Income tax Individual person
earning the income
Individual person
earning the income
Corporate tax Corporate Corporate
Wealth tax Individual person
possessing the wealth
Individual person
possessing the
wealth
Indirect Tax Impact of Tax
(Producer/service provider)
Incidence of tax
(Consumer)
GST Gold ornament maker Final customers/buyers
Excise Duty Tobacco manufacturer Final customers/buyers
Customs Duty Exporter/Importer Final customers/buyers
Miscellaneous
other taxes
Service provider Final customers/buyers

15. ● GST was implemented on 1st July 2017.
● GST is an indirect tax used for the supply of goods and services.
WHAT IS GST?

16. JOURNEY OF GST

17. APRIL 2021 1.41 lakh crore
MAY 2021 1.03 lakh crore

20. GST arguments in favor & against
Hailed as one of the biggest tax reforms of the country,
the Goods and Services Tax (GST) subsumes many
indirect taxes which were imposed by Centre and State
such as excise, VAT, and service tax. It is levied on both
goods and services sold in the country.
Any reform is bound to have advantages and
disadvantages. In this part, we will talk about both the
advantages and disadvantages of GST.

21. ADVANTAGES OF GST/(In Favor)
1.GST eliminates the cascading effect of tax
Cascading tax effect can be best described as ‘Tax on Tax’. Let us take this example to understand what is Tax on Tax:
Before GST regime
A consultant offering services for say, Rs 50,000 and charged a service tax of 15%
(Rs 50,000 * 15% = Rs 7,500).
Then say, he would buy office supplies for Rs. 20,000 paying 5% as VAT
(Rs 20,000 *5% = Rs 1,000).
He had to pay Rs 7,500 output service tax without getting any deduction of Rs 1,000 VAT already paid on stationery.
His total outflow is Rs 8,500.
Under GST

22. 2.Higher threshold for Registration
Under GST regime, however, this threshold has been increased to Rs 20 lakh, which exempts many small traders and service
Providers.
This is the table of tax and threshold limits:-
3.Composition scheme for small business.
4.Simple and Easy Online Procedure.
5.The number of compliances are lesser.
Earlier, there was VAT and service tax, each of which had its own returns and compliances. Under GST, however, there is just one, unified return to be
filed. Therefore, the number of returns to be filed has come down. There are about 11 returns under GST, out of which 4 are basic returns that apply to all
taxable persons under GST.
6.Defined treatment for E-commerce operators.
7.Improved efficiency of logistics.
8.Unorganized sector is regulated under GST

23. DISADVANTAGES OF GST/(AGAINST GST)
1. Increased costs due to software purchase.
Businesses have to either update their existing accounting or ERP software to GST-compliant one or buy GST software so that they can keep their business
going. But both the options lead to the increased cost of software purchase and training of employees for efficient utilization of the new billing software.
2. Not being GST-compliant can attract penalties.
3.GST will mean an increase in operational costs.
As we have already established that GST is changing the way how tax is paid, businesses will now have to employ tax professionals to be GST-compliant. This
will gradually increase costs for small businesses as they will have to bear the additional cost of hiring experts.
4.GST came into effect in the middle of the financial year.
5.Adapting to a complete online taxation system.
Unlike earlier, businesses are now switching from pen and paper invoicing and filing to online return filing and making payments. This might be tough for some
smaller businesses to adapt to.
6.SMEs will have a higher tax burden.
Conclusion
Change is definitely never easy. The government is trying to smoothen the road to GST. It is important to take a leaf from global economies that have
implemented GST before us, and who overcame the teething troubles to experience the advantages of having a unified tax system and easy input
credits.

24. FISCAL SECTOR REFORMS
CHELLIAH COMMITTEE AND KELKAR COMMITTEE - RECOMMENDED
INTRODUCTION
Prior to the liberalization of Economy, India’s tax regime was marred with numerous problems.
In terms of direct taxes, there was a high degree of progressiveness in 1960s and 1970s that led
to adverse effect on tax collection efficiency. Further, there were large number of exemptions
eroded the already narrow tax base in the country. Then, the poor enforcement of direct taxes
led to tax evasion at vogue. In terms of corporation tax, there were numerous discriminations
between different kinds of the companies that discouraged the investments. Further, double
taxation of dividends was also common in those days. In terms of Indirect taxes, the high rates
of custom / excise duties were prevalent. There was no VAT, there was no service sector within
the purview of tax.

25. CHELLIAH COMMITTEE
► Lowering rate and narrowing spread.
► Avoiding double taxation.
► Reducing corporate tax rate differences
between domestic and foreign
companies.
► Rationalising capital gains tax.
► Rationalisation of wealth tax.
► Tariff reduction.
► Rationalisation of excise duty.
RECOMMENDATIONS

26. KELKAR COMMITTEE
RECOMMENDATION OF DIRECT TAXES
► Tax Administration
► Personal Income Tax
► Corporate Tax Reforms
► Abolition of wealth tax
RECOMMENDATION OF INDIRECT TAXES
► Tax Administration
► Customs Tariff
► Central Excise

27. Alone, we can do so little ; Together we can do so much !
- Helen Keller
THANK YOU !!!