Page 31 - Banking Finance March 2025

ARTICLE

Increase in direct tax collection: who took different tax savings scheme.
More thought needs to be given to
The central government levies direct taxes such as personal income tax and
ensuring the economic security of
corporate tax. The government also levies indirect taxes like custom duties,
senior citizens. The old tax regime
excise duties and Goods and Service Tax (GST). The contributions of direct taxes
needed simplification, modernization
to total tax revenue over the last four years are as follows:
and rationalization but not total
rejection of different deductions and
Table: 4 Contributions of Direct Taxes to Total Tax
exemptions. Budget 2024 has already
Revenue increased the standard deduction
under the new tax regime from
Financial Net Collection Indirect Taxes Total Taxes Direct Tax
Rs.50,000/- to Rs.75,000/-.
Year of Direct Taxes (Rs. Crore) (Rs. Crore) as % of
(Rs. Crore) Total Taxes
The old tax regime would increase the
2020 - 21 947176 1074809 2021985 46.84% habit of saving of the taxpayers but the
2021 - 22 1412422 1289662 2702084 52.27% new tax regime benefits taxpayers
2022 - 23 1663686 1381935 3045621 54.63% who earn more or less but invest less.
Every taxpayer must carefully evaluate
2023 - 24 1960166 1495853 3456019 56.72%
their financial position, quantum of
Source: Time Series Data, Income Tax Department, 2023-2024 deduction, investment portfolio, and
exemption limit before opting for
During the financial year 2020-21 the share of direct taxes to the total central either regime. To increase tax net and
taxes collection was 46.84% but after four years i.e. during the financial year to increase Tax-GDP ratio the new tax
2023-24 the share of direct taxes to the total central taxes collection was 56.72%. regime is playing a pivotal role. If some

deductions and exemptions are allowed
Conclusion: to the taxpayer under the new tax
Salaried assessees constitute a significant number in the direct tax population in regime then it will be more attractable
India. Removal of existing deductions and exemptions causes disappointment to all classes of taxpayers across the
especially for the salaried employees and assessees belong to middle income group country.

RBI monetary policy in sync with Budget to support economic growth

The new governor, in his debut monetary policy meeting, adopted a measured approach to inflation targeting and
emphasized economic growth. The Monetary Policy Committee unanimously decided to cut the repo rate by 25 bps,
lowering it from 6.5% to 6.25%, in line with market expectations. The government's fiscal prudence, including a
steady glide path for the fiscal deficit and reducing debt relative to GDP, has provided the RBI with the necessary
headroom to implement a repo rate cut for the first time in five years.
The revised fiscal deficit estimate for FY 2024-25 stands at 4.8%, slightly better than the projected 4.9%, and for FY
2025-26, it is expected to decrease to 4.4%, surpassing market expectations of 4.5%.
Maintaining a neutral stance, the RBI reaffirmed its priority of controlling inflation and ensuring price stability while
considering economic growth. Assuming normal rainfall, the CPI inflation rate for FY 2025-26 is projected at 4.2%.
Real GDP growth is projected at 6.7%, closer to the upper end of the Economic Survey's forecast range of 6.3% to
6.8%.
This is based on strong reservoir levels, anticipated improvements in manufacturing in the second half of FY26, and
expected boosts in household consumption driven by better employment conditions, tax relief in the Union Budget,
moderating inflation, and robust agricultural performance. With inflation aligned with its target, the RBI stated
that the time has come to adopt a more supportive stance on growth.

28 | 2025 | MARCH | BANKING FINANCE