India has come a long way from being a young, developing country to becoming a global economic powerhouse. The year 2022 marks 75 years of an Independent India. The Union Budget is arguably the most essential tool in the arsenal of policymakers that has led us here.
While the frenzy of Budget expectations is already underway, let’s dive into the historic changes proposed in the Union Budgets of India since independence.
We will be looking at the budgets for the following years:
This was Republic India’s first Budget, where Finance Minister John Mathai announced the creation of a Planning Commission. At the same time, then Prime Minister Jawaharlal Nehru was made the Planning Commission Chairperson.
In 2015, the Planning Commission was replaced with the NITI Aayog, which the Prime Minister heads.
The wealth tax was levied on the total value of personal assets and introduced by T.T. Krishnamachari in the 1957-58 Union Budget. The last applicable tax was 1% on assets over Rs. 30 lakhs. Do note that, as against income tax which is taxed in ‘earned income’, wealth tax was taxed on ‘personal assets’. This tax faced public ire, primarily from individuals with a high net worth and the richest of the rich since even assets that do not generate any income were to be taxed.
Wealth tax, however, was abolished in 2016 by Finance Minister Arun Jaitley since it had failed to shore up expected collections for the Central Government, only hampering investor sentiment. It was, however, replaced by an additional 2% super-rich surcharge on net income above Rs. 1 crore. In addition to this, individuals with net income between Rs 2 and Rs 5 crore are levied a 25% surcharge, while those with net income over Rs 5 crore are levied a 37% surcharge.
This super-rich surcharge undergoes changes almost every year, so keep a watch out this year as well!
Former Finance Minister Morarji Desai’s historical Budget, also known as the ‘People’s Budget’ focused on excise reforms.
The excise duty is a tax on the production, sale and licensing of goods domestically produced in India. This Budget simplified excise related assessment of goods by abolishing stamping and assessment of goods at the factory gate. Further, in a push to manufacturing, a landmark self-assessment system for all manufacturers was implemented.
As the term suggests, self-assessment means that the tax liability in excess of TDS and advance tax needs to be calculated or assessed by manufacturing companies themselves as against computation by the excise department. This move significantly reduced the administrative burden on excise authorities and made tax filing easier for manufacturers.
In 1987, Prime Minister Rajiv Gandhi, who was also in charge of the Finance Ministry, introduced the Minimum Alternate Tax (MAT). This tax was introduced to bring zero tax-paying companies under the tax ambit by mandating them to pay a ‘minimum tax rate’. This tax was brought in since many companies would manage to show nil taxable income despite profits by utilizing various exemptions. A MAT of 15% is applicable as of 2021.
Since then, the MAT has been one of the most significant sources of tax revenue for the Central Government.
Dr. Manmohan Singh and Narasimha Rao’s 1991 budget is the most path-breaking Budget ever presented in India. In this Budget, the economic liberalisation, privatisation, and globalisation reforms were announced for India. This led to an influx of foreign direct investment by reducing red tape that had previously stifled business growth, put India on the global map, and helped boost economic growth.
The 1991 Budget also included abolishing the industrial permit license raj, facilitating privatisation of the banking sector, and liberalising foreign investment, which had a far-reaching impact on the economy, which was then struggling with a severe balance-of-payments crisis.
It is interesting to note that this crucial Budget in the history of independent India was not presented on February 1, but on July 24!
Former Finance minister P Chidambaram significantly lowered tax rates in this budget, which boosted tax collections in the subsequent years. The maximum marginal tax rate for individuals was reduced from 40% to 30%, while the rate for domestic companies was reduced from 40% to 35%.
The innovative Voluntary Disclosure of Income Streams (VDIS) helped increase the tax base by allowing individuals to disclose any income without punitive action by tax authorities. The only caveat was that this additional income would be taxed at the highest rate.
Former Finance Minister Arun Jaitley’s Union Budget presentation in 2017 ended the 92-year-old tradition of having the Railway Budget separate from the Union Budget. This move gave the Finance Ministry more room to manage funds across sectors and plan for multi-modal transport (waterways, railways and highways) effectively.
This was the first pandemic Budget in India’s independent history after the COVID-19 pandemic broke out. As a result, the primary focus of Nirmala Sitharaman’s 2021 Budget speech was healthcare, wellness, and recharging the economy that was battered after taking blows from pandemic-induced lockdowns.
Allocation to healthcare shot up 137% to Rs 2,23,846 crore in 2021-22 compared to Rs 94,452 crore in 2020-21. An additional Rs 35,000 crore was also provided for the Covid-19 vaccine, promising to provide further funds if needed.
In this Budget, the Government finally decided to set up an asset reconstruction company that will take over banks’ bad loans, giving them the flexibility to finance the economic recovery.
And finally, the 2021 Union Budget was also the first paperless Budget of India where soft copies were circulated in the Parliament and Finance Minister Nirmala Sitharaman used a tablet to deliver her Budget speech.
This was a brief history of landmark changes in Independent India’s budgets. As PM Narendra Modi promises to build a ‘new India’ by 2047, 100 years after independence – the Budget will continue to bring in important policy changes that we will have to wait and watch.