Echap02 Vol2

Fiscal Developments
02
CHAPTER
The year 2019-20 has been challenging for the Indian economy owing to the
decelerating growth rate experienced in the first half of the year. Amongst the various
reforms introduced during the year to promote growth and investment, reduction in
corporate income tax rate was a major structural reform. The fiscal policy 2019-20
was characterized by sluggish growth in Tax revenue relative to the budget estimates.
The Non-Tax revenue registered a considerably higher growth in the first eight months
of this financial year compared to the same period last year. On the expenditure side,
Total Expenditure has increased at a considerable pace during April to November
2019-20 with Capital Expenditure growing at roughly three times the growth registered
during the same period last year. The fiscal deficit as a per cent of Budget Estimate
during the first eight months of this financial year was at a similar level as that in the
corresponding period last year. Going forward, considering the urgent priority of the
Government to revive growth in the economy, the fiscal deficit target may have to be
relaxed for the current year.
2.1 Amidst the global setting of subdued with debt reaching 46.2 per cent of GDP
growth and intensified trade tensions, and 44.4 per cent of GDP in 2020-21 and
the Budget 2019-20 presented in July 2019 2021-22, respectively. This declining debt
reaffirmed Government’s commitment to trajectory was expected based on a stable
growth with macroeconomic stability. inflation regime and reduction in fiscal
deficit. The fiscal indicators of deficits and
2.2 The Medium Term Fiscal Policy
debt as presented in the MTFP (July 2019)
(MTFP) Statement presented with the Budget
may be seen in Figure 1.
2019-20, pegged the fiscal deficit target for
2019-20 at 3.3 per cent of GDP, which was 2.3 This chapter reviews the fiscal
further expected to follow a gradual path of developments in India during the year 2019-
reduction and attain the targeted level of 3 20. It begins with discussion of Central
per cent of GDP in 2020-21, and continue Government finances over the recent
at the same level in 2021-22. It was further years, followed by analysis of the fiscal
projected that Central Government liabilities performance during the current financial
will come down to 48.0 per cent of GDP year based on data released by the Controller
in 2019-20. The declining path of Central General of Accounts (CGA) upto November
government debt was expected to continue 2019. Thereafter, it briefly touches upon
Fiscal Developments 37
Figure 1: Medium Term Fiscal Policy Statement: Fiscal Indicators
Source: Medium Term Fiscal Policy Statement, Budget 2019-20 (July 2019)
the combined fiscal health of States and 2.5 Major fiscal indicators of the Central
finally concludes with a snapshot of General Government and their growth rates are
Government finances, and an outline of the presented in Table 1 and Table 2, respectively.
outlook for 2020-21. The prominent changes in the Central
Government finances evident from these
CENTRAL GOVERNMENT tables include improvement in the tax to GDP
FINANCES ratio and reduction in primary deficit as a per
cent of GDP.
2.4 Following the path of fiscal
consolidation, the Union Budget 2019-20 Trends in Receipts
sought to contain the fiscal deficit, which 2.6 Central government receipts can broadly
is reflective of the total borrowing be divided into Non-debt and debt receipts.
requirements of Government, at ` 7,03,760 The Non-debt receipts comprise of Tax
crore i.e. 3.3 per cent of the GDP, as against revenue, Non-Tax revenue and Non-debt
3.4 per cent of GDP in 2018-19 Provisional Capital receipts like recovery of loans and
Actuals (PA) (refer to Figure 2). The ratio disinvestment receipts. Debt receipts mostly
of revenue deficit to fiscal deficit broadly comprise of market borrowings and other
measures the extent of borrowings used liabilities, which the government is obliged
for financing current expenditure of the to repay in the future. The Budget 2019-20
Government. In 2019-20 BE, it was pegged targeted a high growth in Non-debt receipts
at roughly the same level as in 2018-19 PA of the Central Government, which was
(Figure 2). driven by high expected growth in Net Tax
38 Economic Survey 2019-20 Volume 2
Figure 2: Trends in Deficits
Source: Union Budget Documents & CGA BE: Budget Estimate, PA: Provisional Actuals FD: Fiscal Deficit;
RD: Revenue Deficit; PD: Primary Deficit.
Note: RD/FD has no units.
Table 1: Central Government’s Fiscal Parameters
2018-19 2019-20
2014-15 2015-16 2016-17 2017-18
PA BE
(in ` Lakh crore)
(Figures in parenthesis are as a per cent of GDP)
Revenue Receipts 11.01 11.95 13.74 14.35 15.53 19.63
(8.8) (8.7) (8.9) (8.4) (8.2) (9.3)
Gross Tax Revenue 12.45 14.56 17.16 19.19 20.8 24.61
(10) (10.6) (11.2) (11.2) (10.9) (11.7)
Net Tax Revenue 9.04 9.44 11.01 12.42 13.17 16.5
(7.2) (6.9) (7.2) (7.3) (6.9) (7.8)
Non-Tax Revenue 1.98 2.51 2.73 1.93 2.36 3.13
(1.6) (1.8) (1.8) (1.1) (1.2) (1.5)
Non-debt Capital
0.51 0.63 0.65 1.16 1.13 1.2
Receipts*
(0.4) (0.5) (0.4) (0.7) (0.6) (0.6)
Non-debt Receipts 11.53 12.58 14.4 15.51 16.66 20.83
(9.2) (9.1) (9.4) (9.1) (8.8) (9.9)
Total Expenditure 16.64 17.91 19.75 21.42 23.15 27.86
(13.3) (13.0) (12.9) (12.5) (12.2) (13.2)
Revenue Expenditure 14.67 15.38 16.91 18.79 20.07 24.48
(11.8) (11.2) (11.0) (11.0) (10.6) (11.6)
Capital Expenditure 1.97 2.53 2.85 2.63 3.08 3.39

(1.6) (1.8) (1.9) (1.5) (1.6) (1.6)
Fiscal Deficit 5.11 5.33 5.36 5.91 6.49 7.04
(4.1) (3.9) (3.5) (3.5) (3.4) (3.3)
Revenue Deficit 3.66 3.43 3.16 4.44 4.54 4.85
(2.9) (2.5) (2.1) (2.6) (2.4) (2.3)
Primary Deficit 1.08 0.91 0.55 0.62 0.67 0.43
(0.9) (0.7) (0.4) (0.4) (0.4) (0.2)
Memo Item
GDP at Market Price 124.68 137.72 153.62 170.95 190.1 211.01
Source: Union Budget Documents & CGA
BE: Budget Estimate, PA: Provisional Actuals
*includes disinvestment proceeds
Table 2: Growth rate of Central Government’s Fiscal Indicators ( in per cent)

Items 2014-15 2015-16 2016-17 2017-18 2018-19 PA 2019-20 BE*
Revenue Receipts 8.5 8.5 15.0 4.4 8.2 26.4
Gross Tax Revenue 9.3 16.9 17.9 11.8 8.4 18.3
Net Tax Revenue 10.8 4.4 16.7 12.8 6.0 25.3
Non-Tax Revenue -0.5 27.0 8.6 -29.4 22.3 32.9
Non-debt Capital 23.0 22.3 3.8 77.0 -2.5 6.3
Receipts#
Non-debt Receipts 9.1 9.1 14.4 7.7 7.4 25.0
Capital Expenditure 4.8 28.6 12.5 -7.5 16.9 10.0

* Rate of growth vis-à-vis 2018-19 PA
#includes disinvestment proceeds
revenue and Non-Tax revenue (refer to income tax, constitute around 54 per cent
Table 2) of GTR. These were envisaged to grow at
Tax Revenue 11.3 per cent relative to 2018-19 RE and
18.7 per cent relative to 2018-19 PA. On
2.7 Budget 2019-20 estimated the Gross the other hand, the indirect taxes were
Tax Revenue (GTR) to be `24.61 lakh
expected to grow at 7.3 per cent vis-a-vis
crore which is 11.7 per cent of GDP. This
builds into growth of 9.5 per cent over the 2018-19 RE and 20.6 per cent as against
revised estimates (RE) of 2018-19 and 18.3 2018-19 PA. The contribution of different
per cent over 2018-19 PA. The direct taxes, taxes in GTR for 2019-20 BE is shown in
comprising mainly of corporate and personal Figure 3.
Figure 3: Composition of taxes in Gross Figure 4 show that receipts from corporate
Tax Revenue in 2019-20 BE and personal income tax have improved over
the last few years. Better tax administration,
widening of TDS carried over the years, anti-
tax evasion measures and increase in effective
tax payers base have contributed to direct
tax buoyancy. Widening of tax base due to
increase in the number of indirect tax filers
in the GST regime has also led to improved
tax buoyancy. Going forward, sustaining
improvement in tax collection would
depend on the revenue buoyancy of GST.
Major measures taken for indirect and direct
taxes in the year 2019-20 are presented
at Annex.
Source: Union Budget Documents & CGA 2.9 During the year 2019-20 (upto
GTR: Gross Tax Revenue, CIT: Corporation Tax, November), the actual realization of Net Tax
ToI: Taxes on Income other than Corporation Tax Revenue to the Center has been ` 7.51 lakh
(includes STT), C: Customs, UED: Union Excise
Duties, GST: Goods and Services Tax crore, which is 45.5 per cent of BE.
2.8 The direct taxes were estimated at 6.3 Non-Tax Revenue

per cent of GDP in 2019-20 BE. Trends in 2.10 Non-Tax revenue comprises mainly
major taxes in relation to GDP displayed in of interest receipts on loans to States and
Figure 4: Taxes as a percent of GDP

Note: 1. CIT: Corporation Tax, ToI: Taxes on Income other than Corporation Tax (includes STT), UED: Union
Excise Duties, GST: Goods and Services Tax, 2. GST includes CGST, IGST and Compensation Cess
Table 3: Trends in Non-Tax Revenue of Central Government

2014-15 2015-16 2016-17 2017-18 2018-19 PA 2019-20 BE
(in ` Lakh crore)
Interest receipts 0.24 0.25 0.16 0.14 0.12 0.14
Dividends & Profits 0.90 1.12 1.23 0.91 1.13 1.64
External Grants 0.02 0.02 0.01 0.04 0.01 0.01
Others 0.83 1.12 1.32 0.84 1.09 1.35
Non-Tax Revenue 1.98 2.51 2.73 1.93 2.36 3.13

Union Territories, dividends and profits from realization upto November 2019 has been
Public Sector Enterprises including surplus 74.3 per cent of the BE.
of Reserve Bank of India (RBI) transferred to
Non-debt Capital receipts
Government of India, receipts from services
provided by the Central Government and 2.12 Non-debt Capital receipts mainly
external grants. The Budget 2019-20 aimed to consist of recovery of loans and advances,
raise ` 3.13 lakh crore of Non-Tax revenue, and disinvestment receipts. Over the last few
1.5 per cent of the GDP, 0.3 percentage points years, the contribution of Non-debt Capital
more than that in 2018-19 PA. Roughly, two receipts have improved in the total pool of
third of this increase in the BE is envisaged Non-debt receipts (Figure 5). They have been
from dividends and profits especially surplus pegged at `1.20 lakh crore, 0.6 per cent of
transferred by RBI (refer to Table 3).
GDP, in 2019-20 BE owing to an envisaged
2.11 As against the 2019-20 BE of `3.13 growth of 6.3 per cent over 2018-19 PA. The
lakh crore for Non-Tax Revenue, the actual receipts from recovery of loans and advances
Figure 5: Composition of Non-debt receipts of Central Government

have been declining over the years and are low, Government faces the challenge of
pegged at 12.4 per cent of Non-debt Capital providing sufficient funds for investment and
receipts in 2019-20 BE. The major component infrastructure expansion while staying within
of Non-debt Capital receipts is disinvestment the bounds of fiscal prudence. Therefore,
receipts that accrue to the government on sale improving the composition and quality of
of public sector enterprises owned by the expenditure becomes significant.
government (including sale of strategic assets).
2.15 The composition of government
Government aimed at mobilising ` 1.05 lakh
expenditure in the last few years reveals that
crore on account of disinvestment proceeds as
expenditure on defence services, salaries,
per 2019-20 BE.
pensions, interest payments and major
2.13 During the year 2019-20 (upto subsidies account for more than sixty per cent
November), the actual realization of Non- of total expenditure. Several initiatives have
debt Capital receipts to the Centre has been been undertaken by the Ministry of Defence
` 0.29 lakh crore as against BE of ` 1.20 to improve efficiency and utilization of
lakh crore. Given the significant pipeline defence expenditure, promote self-reliance,
of deals that are in process, realizations are and encourage private sector participation
likely to accelerate. in the defence sector. Expenditures on
salaries, pensions and interest payments are,
Trends in Expenditure generally speaking, committed in nature
2.14 It is imperative for any developing and therefore have limited headroom for
economy to optimally allocate the available creation of additional fiscal space. Budgetary
resources without compromising on the expenditure on subsidies has seen significant
crucial developmental and macroeconomic moderation through improved targeting.
goals. As India’s tax to GDP ratio is There is still headroom available for further
Table 4: Major Items of Revenue Expenditure

Items 2014-15 2015-16 2016-17 2017-18 2018-19 PA* 2019-20
BE
In ` lakh crore
(6.9) (4.8) (9.9) (11.2) (6.8) (21.9)
of which,
a. Salaries (pay & allowances) 1.34 1.45 1.77 1.94 2.18 2.35
(13.6) (7.9) (22.6) (9.3) (12.7) (7.5)
b. Pensions 0.94 0.97 1.31 1.46 1.60 1.74
(25.0) (3.4) (35.8) (10.9) (9.9) (8.9)
c. Interest payment 4.02 4.42 4.81 5.29 5.83 6.60
(7.5) (9.7) (8.8) (10.0) (10.2) (13.4)
d. Major subsidies 2.49 2.42 2.07 1.91 1.97 3.02
(1.6) (-2.7) (-14.8) (-7.5) (3.1) (53.1)
e. Defence Services 1.40 1.46 1.65 1.86 1.96 2.02
(12.9) (3.9) (13.3) (12.5) (5.3) (3.0)
Numbers in parenthesis are growth rates
*The figure for Salaries (Pay & allowances) for 2018-19 is Revised Estimate (RE).
rationalization of subsidies especially Figure 6: Share of Revenue and Capital
food subsidy. There has been considerable Expenditure in Total Expenditure
restructuring and reclassification of Central
sector and Centrally Sponsored Schemes in
the recent years
2.16 Budget 2019-20 estimated total
expenditure at 27.86 lakh crore, comprising
revenue expenditure of `24.48 lakh crore
and capital expenditure of `3.39 lakh crore,
which work out to be 11.6 per cent and 1.6
per cent of GDP, respectively. Analysis of
Budget Estimates of expenditure in 2019-
20 over 2018-19 PA suggests that Central
Government budgetary expenditure is BE: Budget Estimate, PA: Provisional Actuals.
envisaged to increase by one percentage
point of GDP in 2019-20. The entire increase
is on revenue account with capital spending allocation in 2019-20 BE include internal
remaining unchanged as per cent of GDP. security, investments in Financial
Within revenue expenditure, more than Institutions, pass through assistance for
forty per cent of the increase is explained metro projects, space technology and
by increase in interest payments and major construction of Roads and Railways. Apart
subsidies (refer to Table 4). from budgetary spending, Extra Budgetary
Resources (EBR) have also been mobilized
2.17 The expenditure on major subsidies, to finance infrastructure investment since
which is a significant component of non- 2016-17. EBRs are those financial liabilities
committed revenue expenditure was pegged that are raised by public sector undertakings
at 1.4 per cent of GDP in 2019-20 BE. The for which repayment of entire principal and
budgetary expenditure on major subsidies
interest is done from the Central Government
has shown a declining trend over the past
Budget. Government has raised EBRs of
years. In 2019-20 BE, the major subsidies
`88,454 crore during three years from 2016-
are estimated at ` 3.02 lakh crore owing
17 to 2018-19. It proposes to raise EBR of
to requirements for food, fertilizer and
`57,004 crore in 2019-20 BE which is 0.27
petroleum subsidies.
per cent of GDP. These EBRs are not taken
2.18 The quality of expenditure is captured into account while calculating the Fiscal
by the share of capital expenditure in total Deficit. However, they are considered in the
expenditure. Figure 6 shows that share of calculations of Government Debt.
capital expenditure in total expenditure is Transfer to States
envisaged to decline roughly by a percentage
point in 2019-20 BE over 2018-19 PA. 2.19 The Fourteenth Finance Commission
However, capital spending in 2019-20 BE (FFC) for the award period 2015-20 had made
is estimated to grow by 10 per cent over far-reaching changes to strengthen fiscal
2018-19 PA to reach `3.39 lakh crore. Major federalism in the country. Consequently,
sectors apart from defence services, that States have obtained larger fund transfers as
account for bulk of capital expenditure well as greater autonomy to utilise funds as
per their needs. Transfer of funds to States 2.20 The total transfers to States are given
comprises essentially of three components: in Table 5 and Figure7. Both in absolute terms,
share of States in Central taxes devolved and as a percentage of GDP, total transfers to
to the States, Finance Commission Grants, States have risen between 2014-15 and 2018-
and Centrally Sponsored Schemes (CSS), 19 RE by 1.2 percentage points of GDP. The
and other transfers. Till 2013-14, funds for
Budget 2019-20 envisages an increase in
CSS were routed through two channels, the
expected grants and loan to States by `73,963
Consolidated Funds of the States and directly
to the State implementing agencies. In 2014- crore relative to 2018-19 RE, on account of
15, direct transfers to State implementing higher requirements under compensation to
agencies were discontinued and all transfers States for revenue losses on roll out of GST,
to States including for the CSS were routed grants to rural and urban bodies and releases
through the Consolidated Funds of the States. under Samagra Shiksha.
Table 5: Transfers to States (in ` lakh crore)

Particulars 2014-15 2015-16 2016-17 2017-18 2018-19 RE 2019-20 BE
Devolution of States’ share in 3.36 5.06 6.08 6.73 7.61 8.09
Taxes
Finance Commission Grants 0.62 0.85 0.96 0.92 1.06 1.20
CSS and Other Transfers 2.68 2.39 2.77 3.16 3.71 3.90
Total transfers to States 6.66 8.29 9.81 10.81 12.38 13.19
Source: Union Budget Documents
BE: Budget Estimates, RE: Revised Estimates
Note: States includes only 29 States.
Figure 7: Central Government transfers to States
Source: Union Budget Documents

BE: Budget Estimates, RE: Revised Estimates
Note: States includes only 29 States.
Fiscal outcome in 2019-20 (upto in the corresponding period of the last year
November 2019) vis-à-vis 2019-20 BE (Table 6)
2.21 Indian economy registered a sluggish 2.23 Revenue receipts have grown at a
growth during first half of 2019-20. A much higher pace during the current financial
series of measures were introduced by the year (April to November 2019) over the
Government during the financial year to corresponding period last year (Figure 8).
boost the economy, which are expected Considerable growth in Non-Tax revenue,
to have a substantial direct and indirect especially dividends and profits, which offset
impact on the fiscal performance of the the low growth in Net Tax revenue, underlie
economy. it. Dividends and profits led by transfer
2.22 The accounts for April to November from RBI grew at roughly three times in
2019-20, released by the Controller General April-November 2019 over the same period
of Accounts, show that the fiscal deficit of the last year. It was `1.58 lakh crore in April -
Central Government at end November 2019 November 2019 compared to `0.55 lakh
stood at 114.8 per cent of the BE, same as crore in the same period last year.
Table 6: Fiscal Outcome for 2019-20 (till November 2019)
April to November
2019-20 BE
In ` lakh crore Percentage of Growth over last
(In ` lakh
respective BE year (per cent)
crore)
2018-19 2019-20 2018-19 2019-20 2018-19 2019-20
1 Revenue Receipts 19.63 8.70 9.83 50.4 50.1 8.1 13.0
2 Gross Tax Revenue 24.61 11.65 11.74 51.3 47.7 7.1 0.8
3 Assignment to States 8.09 4.32 4.22 54.8 52.1 12.1 -2.3
4 Tax Revenue (Net to 16.50 7.32 7.51 49.4 45.5 4.6 2.6
Centre)
5 Non-Tax Revenue 3.13 1.39 2.33 56.6 74.3 31.4 67.8
6 Non-debt Capital 1.20 0.26 0.29 28.5 24.2 -57.5 10.4
receipts
7 Non-debt receipts 20.83 8.97 10.12 49.3 48.6 3.4 12.9

8 Total Expenditure 27.86 16.13 18.20 66.1 65.3 9.1 12.8
9 Revenue Expenditure 24.48 14.22 16.06 66.4 65.6 9.8 13.0
10 Capital Expenditure 3.39 1.91 2.14 63.7 63.2 4.0 11.7
11 Revenue Deficit 4.85 5.51 6.23 132.6 128.4 12.6 13.0
12 Effective Revenue 2.78 4.17 4.94 188.8 177.8 15.3 18.5
Deficit
13 Fiscal Deficit 7.04 7.17 8.08 114.8 114.8 17.1 12.7
14 Primary Deficit 0.43 3.68 4.66 759.9 1076.5 21.9 26.5
Source: CGA Monthly Accounts; BE: Budget Estimates
Figure 8: Growth rate of fiscal indicators in 2019-20 (upto November 2019)
Source: CGA Monthly Accounts
2.24 Net Tax revenue to the Centre, which taxes, personal income tax has grown at 7
was envisaged to grow at more than 25 per per cent while corporate tax has registered a
cent in 2019-20 BE relative to 2018-19 PA, negative growth during the first eight months of
grew at 2.6 per cent during April to November the current financial year. This compares poorly
2019, which was nearly half its’ growth rate
with growth recorded by these taxes at 16.4
for the corresponding period last year. This
per cent and 16.6 per cent respectively, over
is primarily owing to low growth in GTR
of 0.8 per cent during first eight months of the same period last year (Figure 8). Recently
2019-20 vis-a-vis 7.1 per cent growth for the Government has undertaken major changes in
corresponding period in 2018-19. Within direct the corporate tax rate which are given in Box 1.
Box 1: Major reform in corporate taxation

On Sept 20, 2019, the Government announced a major cut in the corporate income tax (CIT) rate
applicable to the domestic companies. This was followed by the ‘Taxation Laws (Amendment) Act,
2019 dated Dec 12, 2019, which introduced two new sections viz. 115BAA and 115BAB in the
Income Tax Act. The existing companies have been given an option to forego certain deductions and
exemptions availed under the Act and choose a new CIT rate structure with a maximum marginal rate
(MMR), inclusive of surcharge and cess, of 25.17 per cent as against the existing MMR of 34.61 per
cent. In order to give boost to the manufacturing sector, the new manufacturing companies registered
on or after 1.10.2019 have been given an option to choose a CIT rate with MMR of 17.16 per cent. The
new CIT rate structure is available with effect from the current financial year i.e. 2019-20. However
the CIT rate applicable to the foreign companies remained unchanged. The table below gives an
overview of the existing and new CIT rate structure applicable to the domestic companies for the
financial year 2019-20.
Table- Comparison of existing and new rates of corporate income tax for domestic
companies for the financial year 2019-20
Existing rate New rate

Criteria Rate Criteria Rate
If Total turnover or gross receipt
(a) If a company opts for
in the financial year 2017-18 22%
section115BAA*
does not exceed ` 400 Crore
25% (b) If a manufacturing company
Base CIT rate If a manufacturing company set set up on or after 1.10.2019
up on or after 1.3.2016 opts for opts for section115BAB** and 15%
section 115BA commences manufacturing on or
before 31.03.2023.
Old rate
If not covered by (a) or (b) 30% If not covered by (a) or (b) structure
applicable
If not in (a) or (b) 15%
MAT rate All companies 18.5%
If in (a) or (b) NIL
If Total Income not more than
0%
`1 crore
If total income more than ` 1
Surcharge rate crore but not more than `10 7% All companies 10%
crore
If total income is more than `10
12%
crore
Cess rate All companies 4% All companies 4%
* Companies included under Section 115BAA: Existing domestic companies that opt for new CIT rate and satisfy the
following pre-conditions:
• Deductions or exemptions are not claimed under section 10AA, or 32(1) (iia), or 32AD, or 33AB, or 33ABA, or
32(2AA)/(2AB) (1)(ii)/(iia)/(iii), or 35AD, or 35CCC, or 35 CCD, or under any provisions of Chap VI-A other than
section 80JJAA.
• Set-off of carried forward / current losses or depreciation attributable to any of the aforesaid deductions is not availed.
• Only depreciation other than additional depreciation under section 32(1)(iia) is claimed
** Companies included under Section 115BAB: New manufacturing companies that are set up and registered on or after
Oct 1, 2019, which bring in fresh investment, commence manufacturing on or before March 31, 2023 and satisfy certain pre-
conditions including the aforesaid pre-conditions.
Rationale behind the reform
All over the world, many countries had reduced CIT rate to attract investment and create employment
opportunities. The act of reduction of CIT rate by other countries, in particular Asian developing
countries, which compete with India to attract investments, provided an impetus to lower the CIT rates
in India. It is expected that this would spur investment, stimulate growth and create job opportunities
in India. A comparison of the CIT rates in ASEAN countries, with the reduced CIT rate in India (for
new manufacturing companies in particular), presented in the figure below, shows that the CIT rate
in India is now lower than most ASEAN countries. The stimulus provided by the corporate tax cut is
also expected to have a multiplier effect on the economy. Fresh investments in the coming future are
expected to not only result in creation of new jobs but also lead to increased income levels. As a result,
tax collections are also likely to rise in the medium to long run.
Figure : Corporate Tax Rate across ASEAN countries
Who will benefit?
An analysis conducted by Tax Policy Research Unit (TPRU), based on income tax return (ITR) data of
corporates for the financial year 2016-17, points out that most of the companies (99.1 per cent) have a
gross turnover of below ` 400 crore (say small and medium companies) and are already taxed at the
base CIT rate of 25 per cent. With surcharge and cess, their MMR varies from 26 per cent to 29.12 per
cent. On the other hand, only 0.9 per cent of the companies i.e. 4,698 companies have gross turnover
of over ` 400 crore (say large companies) and their MMR varies from 30.9 per cent to 34.61 per cent.
Thus, the impact of CIT rate cut varies from gain of about 3.2 per cent to 13.5 per cent of the existing
tax liability for small/medium companies to about 18.5 per cent to 27.3 per cent of the existing tax
liability for large companies.
Source: Department of Revenue, Ministry of Finance
2.25 The indirect tax receipts have of GST rate rationalisation on GST
registered a growth of -0.9 per cent in the first revenue collection may be seen in Box 2.
eight months of this fiscal year. Gross GST The increase in GST collections may be
collections, Centre and States taken together, a result of concerted efforts taken by the
was ` 8.05 lakh crore in April to November government to improve tax compliance
2019, which is an increase of 3.7 per cent and Tax revenue collection. These include
over the corresponding period last year. The extensive automation of business processes,
GST collections for the Centre for the same application of e-way bill mechanism,
period registered a growth of 4.1per cent over targeted action on compliance verification,
the corresponding period last year. enforcement based on risk assessment
and proposed introduction of electronic
2.26 Notably, so far, during 2019-20, invoice system. The details of reforms in GST
despite the rationalisation of GST rates, the may be seen at Annex 1. Amongst the reforms
gross GST monthly collections has crossed undertaken for increasing GST compliance,
the mark of ` one lakh crore, for a total the GSTN has taken several initiatives to
of five times, including the consecutive incorporate behavioural parameters to induce
months of November 2019 and December voluntary compliance by taxpayers. Some of
2019. An analysis to estimate the impact these may be seen in Box 3.
Box 2: Vector Autoregression Analysis (VAR) of GST rate rationalisation

on GST collections
Variable and Data

Variables: GDP, GST collection and GST rationalisation.
Variable description: GST rationalisation is the number of goods in the 28% category, as this is the
only category which has witnessed drastic changes in the past GST Council meetings. The GST
collection includes revenue from CGST, SGST, and IGST. Values of GDP and GST collections are
taken in logarithmic form.
Data: The data for GST collections is from GSTN, GST rationalisation from CBIC, and GDP data from
CSO, MOSPI. The data for GST rationalisation and GST collection are available on a monthly basis,
whereas the GDP data is available at quarterly interval. Monthly data for GDP has been interpolated
to make the data comparable with other data series.
Methodology
Using the Vector Autoregression (VAR) model we analysed the impact of a shock through GST rates
on GST collection. We selected two lags for our analysis using AIC criterion and estimated the VAR
model. Post estimation of the model, we used the standard impulse response function (IRF) to see the
impact of a shock to the GST rates on GST collections. The IRFs from the VAR model is given in the
graph below.
Conclusion
It is found that a positive shock to the GST rationalisation variable (implying increasing the number of
goods under GST) leads to an increase in GST collection in first few months, specifically one to three
months after the shock and then the impact tappers off.
Source: Survey calculations, CSO (MOSPI), CBIC, GSTN

Box 3: Use of Behavioural parameters by GSTN to enhance voluntary compliance
Amongst the various measures taken by the Government to simplify the GST tax system, several initiatives
by GSTN to create an environment of voluntary compliance are based on taxpayers behaviour parameters
incorporating factors such as deterrence, developing social and personal norms, reducing complexity, and
enhancing fairness and trust. Some of these are discussed below:
• E-way bill
The GST rules provide for electronic generation of e-way bill for transportation of goods above a certain
threshold of value of the goods being transported. Comparison of data from e-way bill portal to that in GST
portal enables verification of the supply of goods involving physical movement. This acts as an effective tool
of deterrence to prevent misreporting of information.
• PIN code to PIN code distance mapping in e-way bill system
The inclusion of origin and destination PIN Codes in the e-way bill portal prevents any over-reporting of
distance which could lead to misuse of the e-way bill for multiple trips. This is enabled through a technology
based solution. This deters misreporting by tax payers and help curb tax evasion.
• Return filing status of a GSTIN visible in public domain on the GST Portal
The publicly available information on the return filing status of GSTIN enables the buyers to choose the
compliant taxpayers for doing business, and minimise the business risk by increasing the probability of
availing a timely ITC. This initiative of the Government thus encourages a better compliance environment
through social and market pressures.
• Caution against mismatch in GSTR-2A & GSTR-3B; and GSTR-1 & GSTR-3B, above a certain
threshold
While filing the GST returns, tax liability is declared in both GSTR-1(invoice level detail) and GSTR-3B
(summary), and ITC is declared in GSTR-3B (summary) and is also auto-populated in GSTR-2A (through
GSTR-1). In case the liability declared in GSTR-3B is lesser than GSTR-1, or the ITC claimed in GSTR-
3B is more than GSTR-2A, a comparison of this anomaly is visible on suppliers’ GST dashboard to induce
the taxpayer to correct it and avoid future litigation. Making this information available to the taxpayers, on
a month-wise basis; and sending regular SMSs regarding such mismatch in data, encourages them to take
timely corrective action, if so required.
• SMSs for reminders of due date of monthly return (On 10th, 13th, and 15th of every month) and
non-filing of return.
SMS reminders are sent to Authorised Signatories of firms for gently reminding upcoming Due Date of filing
summary return GSTR-3B, and, to both Authorised Signatories and Directors/Partners of the firms (non-filers)
in case the Due Date is missed, induces taxpayers to inculcate the behaviour of timely filing of returns by way
of creating internal organisational pressures and hence build on their personal norms.
• Free accounting & billing software provided to small taxpayers
In order to ease the compliance in the technology driven GST regime, GST Council has decided to offer free
services like preparing invoices, GST returns, Income Tax returns, Balance sheet and Profit & Loss statement
through accounting & billing software for the small businesses, which constituted more than 80% of all GST
taxpayers in March 2019.
• Questionnaire based filing of return and showing the relevant tables
In order to reduce the complexity of returns and simplify the process, the GST portal adopts a questionnaire
based return filing system, whereby based on the reply given by the taxpayer in the questionnaire, only
relevant tables for filing will be visible to taxpayer on returns dashboard. This simplification is meant to ease
compliance for the taxpayers.
• Compliance rating score of the taxpayers available in the public domain
GST Act provides for public display of compliance rating score of every registered GST tax-payer based
on taxpayer record of compliance with provisions of GST Act. Government is in the process of finalising
the method of computation of this compliance rating. Once finalised and made available in public domain,
this would enable buyers to choose compliant taxpayers for doing business, as their timely ITC claim is
dependent on timely filing of GST return by the seller. The deterrence of a possible loss of business on account
of a low compliance rating score would induce taxpayers to be more compliant. In addition, public display
of this information would increase the transparency and lead to improved trust of the businesses in the tax
administration and develop a social norm of good compliance in the long run.
• Acknowledging contribution of compliant taxpayers
Government has decided to issue a certificate to compliant GST taxpayers, and acknowledge their contribution
towards nation building. This appreciation serves to motivate taxpayers to continue their compliant behaviour
in future as well.
Source: Goods and Services Tax Network (GSTN)
2.27 The Non-debt Capital receipts includes crore which is 17.2 per cent of 2019-20 BE.
recovery of loans and disinvestment receipts. The details of disinvestment during 2019-
Government has targeted to mobilise `1.05 20 and new initiatives being undertaken by
lakh crore from disinvestment proceeds. Department of Investment and Public Asset
So far, it has been able to raise `0.18 lakh Management (DIPAM) are given in Box 4.
Box 4: Disinvestment
The B.E. for disinvestment proceeds for the year 2019-20 was fixed at `1.05 lakh crore. As on 31st
December 2019, the Government has mobilised `0.18 lakh crore using a variety of instruments like Initial
Public Offers (IPOs), Offer for Sale (OFS), Exchange Traded Funds (ETF) etc. Details are as under:
Listing of shares (IPO): During the year 2019-20, two IPOs namely Indian Railway Catering and Tourism
Corporation (IRCTC) and Rail Vikas Nigam Ltd (RVNL) were successfully listed yielding `636 crore
and `475.89 crore respectively, while five more PSEs, namely, Indian Railway Finance Corporation
(IRFC), Kudremukh Iron Ore Company Limited (KIOCL) (FPO), RailTel, Water and Power Consultancy
Services (WAPCOS) and Telecommunications Consultants India Limited (TCIL) are in the process of
listing (as on 31.12.2019).
Offer for sale (OFS): During the year 2019-20, OFS of Railway Infrastructure Technical and Economic
Service (RITES) has been concluded yielding `729.45 crore.
ETFs: ETFs were the biggest source of receipts during current year with Further Fund Offer-5 (FFO)
of CPSE-ETF fetching `10,000.39 crore and FFO-2 of Bharat 22 ETF fetching `4,368.80 crore in July
2019 and October 2019 respectively. In aggregate, ETFs have fetched `14,369.19 crore in 2019-20 (as
on 31.12.2019).
Others: Sale of Enemy Shares by Custodian of Enemy Property for India (CEPI): `1,881.21 crore
Major Initiatives taken by DIPAM

1. Strategic Disinvestment:
The CCEA has given in-principle approval (on 20.11.2019) for strategic disinvestment of the GoI
shareholding in five public sector enterprises along with management control. These are: Bharat
Petroleum Corporation Ltd (BPCL); Shipping Corporation of India (SCI); Container Corporation
of India (CONCOR); Tehri Hydro Power Development Corporation (THDCIL), and North Eastern
Electric Power Corporation Ltd (NEEPCO). The strategic sale of THDC, NEEPCO and Numaligarh
subsidiary of BPCL will be made to a CPSE buyer. The CCEA has also given in principle approval
(on 08.01.2020) of strategic disinvestment of Government of India shareholding in Neelachal Ispat
Nigam Ltd. (NINL). With this, a total of 34 CPSEs/Subsidiaries/Units of CPSEs (including Air India)
have now been accorded ‘in-principle’ approval by the government for strategic disinvestment. The
Government strategically sold its stake in 5 CPSEs namely Hindustan Petroleum Corporation Limited
(HPCL), Rural Electrification Corporation Limited (REC), Dredging Corporation of India Limited
(DCIL), Hospital Services Consultancy Corporation Limited (HSCC) & National Projects Construction
Corporation Limited (NPCC) in last two years which resulted in a yield of `52,869 crore. The process
for strategic disinvestment in identified CPSEs in the current year has been initiated.
Streamlining the procedure for strategic disinvestment: In order to make the procedure for strategic
disinvestment more expeditious and result-oriented, CCEA has approved a modified procedure for
strategic disinvestment, whereby, the Inter-Ministerial Group (IMG) chaired by the Secretary, DIPAM
and Co-Chaired by Secretary of the Administrative ministry/department concerned will drive the
procedure and play a pivotal role in the entire process.
2. Reduction of Shareholding in select CPSEs below 51% while retaining management control:
In the Budget Speech of 2019-20 the Government had announced the decision to modify present
policy of retaining 51% Government stake to retaining 51% stake inclusive of the stake of government
controlled institutions. Accordingly, the CCEA has given in principle approval (on 20.11.2019) for
reduction of Government of India paid-up share capital below 51% in select CPSEs while retaining
the management control, taking into account the Government shareholding post such reduction and the
shareholding of Government controlled institutions. This policy decision will increase the bandwidth
for disinvestment through minority stake sale.
3. Asset Monetization Framework: The Union Cabinet in February 2019 approved the procedure
and mechanism for Asset Monetization of CPSEs/PSUs/other Government organizations and
Immovable Enemy Properties. This will enable monetization of identified non-core assets of CPSEs
under strategic disinvestment and Immovable Enemy Property under the custody of Custodian of
Enemy Property (CEPI), Ministry of Home Affairs. This Framework is also available to monetize
assets of other CPSEs/PSUs/other Government Organizations and loss making/sick CPSEs.
4. Debt ETF: Cabinet Committee on Economic Affairs (CCEA) has approved the creation and
launch of India’s first corporate Debt Exchange Traded Fund (Debt ETF) which would create an
additional source of funding for Central Public Sector Enterprises (CPSEs), Central Public Financial
Institutions (CPFIs), and other Government organizations and would increase the retail participation
in the Indian corporate bond market.
Bharat Bond ETF was launched on 12th December, 2019 which received a strong response
from investors across different segments and was oversubscribed by 1.7 times. It has provided a new
window of access to retail investors in bond market. With regular issuances, the Bharat bond ETF will
help in deepening the bond market in India and develop a yield curve for CPSEs over a period of time.
Source: Department of Investment and Public Asset Management (DIPAM)

2.28 On the expenditure side, the capital compared to the same period previous year.
expenditure during April to November Among the major subsidies, the growth
2019-20 has grown at roughly three times in expenditure on Urea and Petroleum
vis-à-vis the same period in 2018-19. Also subsidies has been higher during this period
revenue expenditure has grown at a higher as compared to April to November 2018-19
rate during these eight months of 2019-20, (refer to Table 7).
Table 7: Expenditure on major subsidies

Items Budget Estimate April to November (In ` lakh crore)
(In ` lakh crore)
2019-20 2017 2018 2019
Total Major Subsidies 3.02 2.06 2.19 2.35
Food Subsidy 1.84 1.35 1.42 1.32
Nutrient Based Fertilizers
0.26 0.18 0.20 0.22
Subsidy
Urea Subsidy 0.54 0.32 0.33 0.51
Petroleum 0.37 0.21 0.23 0.30
Source: CGA Monthly Accounts
2.29 Based on the above analysis there is in nature, this leaves a little fiscal headroom
an apprehension that the Tax revenue for the for manoeuvre. Therefore, the focus of the
current fiscal year would be muted relative to Government should lie on rationalization
the target envisaged in 2019-20 BE. The gap of non-committed revenue expenditure like
due to lower tax receipts could be to some subsidies. Further, to boost the domestic
extent compensated by higher mobilisation demand which is crucial for revival of growth,
of Non-Tax revenue and disinvestment
fiscal deficit target may have to be relaxed for
proceeds for 2019-20. However, high growth
the current year.
in Non-Tax revenue may not be sustainable
year after year. The realization from Non-Tax Central Government Debt
revenue and disinvestment being uncertain
adds to the volatility in revenue projection. 2.31 Total liabilities of the Central
Government include debt contracted against
2.30 Thus in order to be on track with the the Consolidated Fund of India, technically
fiscal path outlined by the Medium Term Fiscal defined as Public Debt, as well as liabilities in
Policy Statement, it would be imperative to the Public Account. These liabilities include1
rationalize expenditure. However, given the external debt (end-of-the financial year) at
sluggish demand and decline in growth of current exchange rate but exclude part of NSSF
private consumption expenditure reported liabilities to the extent of States’ borrowings
in first half of the fiscal year, any cut in from the NSSF and investments in public
expenditure especially capital expenditure agencies out of the NSSF, which do not finance
would have adverse implications for growth. Central Government deficit. Total liabilities of
Moreover, since a considerable proportion of the Central Government at end March 2019
revenue expenditure like interest payments, stood at `84.7 lakh crore and 90 per cent of
wages and salaries and pensions is committed which was public debt (refer to Table 8).
__________________________
As per Status Paper on Government Debt.

1
Table 8: Debt Position of the Central Government (in ` Lakh crore)

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 (P)
A. Public Debt (A1+A2) 40.97 46.15 51.05 57.11 61.50 68.84 75.79
A1. Internal Debt (a+b) 37.65 42.41 47.38 53.05 57.42 64.01 70.66
a. Marketable Securities 33.61 38.54 43.09 47.28 50.49 55.10 59.68
b. Non-marketable Securities 4.04 3.87 4.29 5.77 6.93 8.91 10.98
A2. External Debt* 3.32 3.74 3.66 4.07 4.08 4.83 5.13
B. Public Account - Other 6.10 7.23 7.62 8.16 8.57 9.15 8.89
Liabilities
C. Total Liabilities (A+B) 47.07 53.39 58.66 65.27 70.07 77.99 84.68
Source: Various issues of Status Paper on Government Debt and Quarterly Report on Public Debt for December
2018; P: Provisional * The external debt at current exchange rates from Aid, Account and Audit Division, Minis-
try of Finance. Data for 2017-18 and 2018-19 include net cumulative SDR allocations by the IMF.
2.32 Figure 9 shows that total liabilities FRBM Act, 2003. This is an outcome
of the Central Government, as a ratio of of both fiscal consolidation efforts as
GDP, has been consistently declining, well as relatively high GDP growth
particularly after the enactment of the (Figure 10).
Figure 9: Trend in Centre’s Debt-GDP ratio
Source: Various issues of Status Paper on Government Debt; P: Provisional
Figure 10: GDP growth and growth in Outstanding Liabilities
Source: Various issues of Status Paper on Government Debt; P: Provisional

2.33 Central Government debt is 2.34 The other salient feature is the gradual
characterised by low currency and interest elongation of the maturity profile of the Central
rate risks. This is owing to low share of Government’s debt (refer to Figure 11) leading
external debt in the debt portfolio and almost to reduced rollover risks. The proportion of
entire external borrowings being from official dated securities maturing in less than five years
sources. Further, most of the public debt has has seen consistent decline in recent years.
been contracted at fixed interest rate making The weighted average maturity of outstanding
India’s debt stock virtually insulated from stock of dated securities of the Government
interest rate volatility. This lends certainty of India has increased from 9.7 years at
and stability to budget in terms of interest end March 2010 to 10.4 years at end March
payments. 2019.
Figure 11: Maturity Profile of Outstanding Dated Central Government Securities

(as per cent of Total)
Source: Status Paper on Government Debt, 2017-18; Quarterly Report on Public Debt Management for
April- March 2018-19; P: Provisional
STATE FINANCES in revenue expenditure, whereas the capital

expenditure is placed to grow at only 3.7
2.35 As per 2019-20 budget estimates of per cent (refer to Table 9). The rising trend
the State Governments, the States’ combined in revenue expenditure is driven by rise in
own Tax revenue and own Non-Tax revenue committed expenditure including pension
is anticipated to grow at 11.1 per cent and 9.9 and interest. In fact, the RBI Study on State
per cent respectively, which is low relative Finances attributes the fiscal consolidation of
to the robust growth displayed in 2018-19 the States in the last four to five years to the
RE. The envisaged growth of 8.4 per cent in steep decline in expenditure, mainly capital,
total expenditure in 2019-20 BE w.r.t. 2018- which may have adverse implications for the
19 RE is largely led by 9.4 per cent growth pace and quality of economic development,
given the large welfare effects of a much PA) and 2.4 per cent in 2017-18. The financing
wider interface with the lives of people at the pattern of Gross Fiscal Deficit for States has
federal level. also changed over the years. Financing via
market borrowings has increased from 61.6
2.36 The States have thus continued on the per cent in 2015-16 to 73.7 per cent in 2018-
path of fiscal consolidation and contained the 19 RE and is further expected to rise to 87.9
fiscal deficit within the targets set out by the per cent in 2019-20 BE.
FRBM Act. For the year 2019-20, the States 2.37 On the other hand, the debt to GDP ratio
have budgeted for gross fiscal deficit of 2.6 per for States has risen since 2014-15 owing to
cent of GDP as against an estimate of 2.9 per the issuance of UDAY bonds in 2015-16
cent in 2018-19 RE (2.4 per cent in 2018-19 and 2016-17, farm loan waivers, and the
Table 9: Fiscal Indicators of States

Items 2014-15 2015-16 2016-17 2017-18 2018-19 RE 2019-20 BE
(in ` lakh crore)
Own Tax Revenue 7.8 8.5 9.1 10.9 12.3 13.6
(9.4) (8.7) (7.8) (19.6) (12.4) (11.1)
Own Non-Tax Revenue 1.4 1.5 1.7 1.8 2.2 2.4
(8.4) (6.95) (10.3) (4.7) (24.4) (9.9)
(18.7) (12.3) (13.5) (10.2) (22.9) (9.4)
Capital Expenditure 3.0 4.2 5.1 4.3 5.9 6.1
(23.3) (40.5) (20.4) (-16.6) (38.1) (3.7)
(19.4) (16.7) (14.8) (5.0) (25.3) (8.4)
Source: RBI State Finances: A Study of Budget and Union Budget Documents,
RE: Revised Estimates; BE: Budget Estimates; Numbers in parenthesis are growth rates
Note: States include only 29 States
Figure 12: Revenue Receipts of States
Source: RBI State Finances: A Study of Budget and Union Budget Documents
RE: Revised Estimates; BE: Budget Estimates
Note: States include only 29 States
implementation of Pay Commission awards 2.38 Net borrowing ceilings of the States
(Figure 13). The Debt to GDP for States is for the year 2019-20 has been fixed at
likely to remain around 25 per cent of GDP in `6,11,186 crore anchoring the fiscal deficit
2019-20, clearly making the sustainability of target of 3 per cent of respective State GSDP
debt the main medium term fiscal challenge as recommended by Fourteenth Finance
for States. Commission (FFC) for its award period
Figure 13: Major deficit and debt indicators of States
Source: RBI State Finances: A Study of Budget; RE: Revised Estimates; BE: Budget Estimates
Note: States include 29 states and 2 Union Territories with legislatures.
(2015-20). As per the recommendation of in 2016-17 to seven eligible States, ` 12,873

FFC, the Union Government has approved crore in 2017-18 to nine eligible States,
year-to-year flexibility for additional fiscal ` 12,664 crore in 2018-19 to ten eligible
deficit to States for the period 2016-17 to States and `4,214 crore in 2019-20 (till 04
2019-20 to a maximum of 0.5 per cent over November, 2019) to four eligible States
and above the normal limit of 3 per cent in any have been allowed under flexibility options
given year to the States subject to the States recommended by FFC.
maintaining the debt-GSDP ratio within 25
GENERAL GOVERNMENT
per cent and Interest Payments to the Total
FINANCES
Revenue Receipts ratio within 10 per cent in
the previous year. However, the flexibility 2.39 It is critical to analyse the General
in availing the additional fiscal deficit will Government finances to get an overview of
be available to State if there is no revenue fiscal position of the Government as a whole.
deficit in the year in which borrowing limits The General Government (Centre plus States)
are to be fixed and immediately preceding is expected to continue on the path of fiscal
year. After complying with these conditions, consolidation as the fiscal deficit of General
the additional borrowings of ` 12,269 crore Government is expected to decline from 6.2
Figure 14: Trends in General Government Debt and Deficits

(as a per cent of GDP)
Source: RBI
BE: Budget Estimates; RE: Revised Estimates
per cent of GDP in 2018-19 RE to 5.9 per cent eight months of 2019-20, the indirect tax
of GDP in 2019-20 BE (Figure 14). However collections have been muted. Therefore,
the combined liabilities of Centre and States revenue buoyancy of GST would be key to
have increased to 69.8 per cent of GDP as on the resource position of both Central and
end-March 2019 (RE) from 68.5 per cent of State Governments. On the expenditure
GDP as on end-March 2016. side, rationalisation of subsidies especially
food subsidy could be an important tool for
OUTLOOK
expanding the headroom for fiscal manoeuvre.
2.40 The year 2020-21 is expected to pose The Fifteenth Finance Commission
challenges on the fiscal front. While on one reportedly has also submitted its Interim
hand the outlook for global growth persists Report and its recommendations especially
to be weak, with escalated trade tensions on tax devolution would have implications
adding to the risk; on the other hand, the pace for Central Government finances.
of recovery of growth will have implications
2.42 Finally, the geopolitical situation
for revenue collections.
unfolding in West Asia is likely to
2.41 In order to boost the sluggish demand have implications for oil prices and
and consumer sentiments, counter-cyclical thereby on the petroleum subsidy, apart from
fiscal policy may have to be adopted to create having implications for current account
additional fiscal headroom. During the first balance.
CHAPTER AT A GLANCE
During the first eight months of 2019-20, the Revenue Receipts registered a higher
 growth compared to the same period last year, which was led by considerable growth in
Non-Tax revenue.
During 2019-20 (upto December 2019), the gross GST monthly collections has crossed

the mark of ` one lakh crore for a total of five times.
Structural reforms undertaken in taxation during the current financial year include

change in corporate tax rate and measures to ease the implementation of GST.
The States have continued on the path of fiscal consolidation and contained the fiscal

deficit within the targets set out by the FRBM Act.
 The General Government (Centre plus States) has been on path of fiscal consolidation
Going forward, considering the urgent priority of the Government to revive growth in the

economy, the fiscal deficit target may have to be relaxed for the current year.
Annex 1
Major measures taken for Indirect taxes during 2019-20
A. Basic Custom Duty (BCD)
• The basic customs duty rates in general are Nil/2.5%/5%/7.5% on the inputs/ intermediate
products [industrial chemicals, ores and concentrates, fuels, textile fibres and yarns etc] used
in industries for manufacturing. Finished items of consumption attract higher duty, e.g., items
like paper and paper products, marble slabs, auto parts, electronic items etc.
• In line with the efforts made to remove inversions in duty structure, Tariff Commission and
Department for Promotion of Industry and Internal Trade (DPIIT) examined the issues of
inversion/ negative effective protection to the domestic industry. In majority of cases Tariff
Commission did not find any inversion. Appropriate corrections were made in few cases
recommended by them. The inversion now being spoken about essentially emanates from
Free Trade agreements (FTA) and ITA.
• To safeguard the strategic interests of the country specified Defence equipment and their
parts, imported by the Ministry of Defence or the Armed Forces, have been exempted from
Basic Customs Duty in the Budget 2019-20.
• In line with “Make in India” initiative of the Government, and to provide level playing
field, ensure better capacity utilization and achieve import substitutions, custom duty was
increased on goods like specified electrical/electronics/telecom equipment and hardware,
Poly Vinyl Chloride, specified articles of nylon, HDPE and plastics, stainless steel and other
alloy steel and their semi-finished products, wires of alloy steels, certain automobile parts,
newsprint, uncoated paper used for printing of newspapers and lightweight coated paper used
for printing of magazines. The end use based exemption granted to Palm stearin and fatty oils
was also withdrawn.
• Further, to reduce input costs and/or to remove duty inversion, and in turn incentivize the
domestic value addition in these sectors, customs duty was reduced on certain goods like
specified parts for manufacture of electric vehicles, naphtha, ethylene dichloride (EDC),
propylene oxide (PO) and raw material for manufacture of artificial kidneys, disposable
sterilized dialyzer and micro-barrier of artificial kidney. Moreover, capital goods used for
manufacturing of electronic items, namely populated PCBA, camera module of cellular
mobile phones, charger/adapter of cellular mobile phone, lithium ion cell, display module,
set top box and compact camera module were exempted from BCD.
• To incentivize exports, the export duty on EI leather has been abolished and on Hides, skins
and leathers (tanned and untanned, all sorts) the export duty has been reduced.
• Moreover, as part of revenue augmentation exercise, customs duty rates on all precious metals
like gold, silver, platinum, waste of precious metal etc. (other than rhodium), gold and silver
dore, gold/silver bought by an eligible passenger has been raised by 2.5% (10% to 12.5%).
B. Goods and Services Tax (GST)
• The introduction of GST has been a game changer for the Indian economy as it has replaced
multi-layered, complex indirect tax structure with a simple, transparent and technology-
driven tax regime. GST has integrated India into a single common market by breaking
barriers to inter-state trade and commerce. By eliminating cascading of taxes and reducing
transaction costs, it has enhanced ease of doing business and has provided an impetus to
‘Make in India’ campaign.
• However, there are criticisms of the implementation of the GST. There are too many rates,
too large a set of commodities has been excluded, and the system is more complex than it
needs to be especially in the matter of crediting taxes paid on inputs and providing refunds
to exporters. The government has acknowledged many of these problems and they are being
addressed on regular basis.
• To bring about further reforms in the indirect tax system, the government is coming up with
following measures:
I. A single source fully automated return system:
• Since the inception of Goods and Services Tax (GST), the main intention of the government
was to have a robust system for allowing invoice level reconciliation of transactions. It was
envisioned in the form of the returns GSTR-1, GSTR-2 and GSTR-3. However, keeping
taxpayer convenience and revenue interest, a simplified return in Form GSTR 3B read with
GSTR 1 was introduced. The government intended to implement its principle idea of invoice-
level reconciliation by following the sequence of returns GSTR-1, GSTR-2 and GSTR-3.
• The New Return System, which is proposed to be introduced w.e.f. 01.04.2020 aims to
reduce manual efforts and uses technology extensively, while maintaining a similar working
model.It aims to achieve this by having a single main return (GST RET-1/2/3) supported by
two annexures (GST ANX-1 & GST ANX-2) that work dynamically on a separate facility.
II. Fully electronic refund process through FORM GST RFD-01 and single disbursement:
• The necessary capabilities for making the refund procedure fully electronic, in which all
steps of submission and processing shall be undertaken electronically, have been deployed
on the common portal with effect from 26.09.2019.
• Further, separate disbursement of refund amounts under different tax heads by different
tax authorities, i.e. disbursement of Central tax, Integrated tax and Compensation Cess by
Central tax officers and disbursement of State tax by State tax officers, was causing undue
hardship to the refund applicants. In order to facilitate refund applicants on this account, both
the sanction order and the corresponding payment order for the sanctioned refund amount,
under all tax heads, is issued by one officer only.
III. Rationalization of cash ledger:
• With regards to single cash ledger, rationalisation of the ledger in such a manner that earlier
20 heads are merged into 5 major heads is on the anvil. Unified Cash Ledger will be rolled
out w.e.f. 01.02.2020.
IV. Generation and quoting of Document Identification Number
• In keeping with the Government’s objective of transparency and accountability in indirect
tax administration through widespread use of information technology CBIC w.e.f. 08.11.2019
has introduced Document Identification Number (DIN), for all communications sent by its
offices to taxpayers and other concerned persons. Presently DIN is applicable for search
authorization, summons, arrest memos, inspection notices and letters issued in the course of
any enquiry.
V. Sabka Vishwas (Legacy Dispute Settlement) Scheme 2019
• The scheme is a one-time measure for liquidation of past disputes of Central Excise, Service
Tax and 26 other indirect tax enactments. It provides an opportunity of voluntary disclosure
to non-compliant taxpayers. Cases covered under the scheme are (i) A show cause notice
or appeals arising out of a show cause notice pending as on the 30th day of June, 2019 (ii)
An amount in arrears (iii) An enquiry, investigation or audit where the amount has been
quantified on or before the 30th day of June, 2019 and (iv) A voluntary disclosure.
• The scheme provides that eligible persons shall declare the unpaid tax dues and pay the same
in accordance with the provisions of the scheme. The scheme provides for certain immunities
including penalty, interest or any other proceedings including prosecution to those persons
who pay the declared tax dues.
VI. Electronic invoicing
• The Government has proposed to introduce electronic invoicing system (e-invoice) for all
B2B invoices in a phased manner. Phase 1 would be voluntary and is proposed to be rolled
out from Jan 2020. Further, it is proposed to make e-invoicing mandatory for those having
annual turnover of more than 100 crores w.e.f. 01.04.2020. This would help in seamless flow
of credit and invoice matching as envisaged in the GST regime. Further, it would help in real-
time updation of data on the GSTN system and thereby, drastically reducing the time taken
in filing the returns.
VII. Quick Response (QR) Code
• The Government is proposing to implement the system of invoice with dynamic QR code
for all B2C invoices for the taxpayers having annual aggregate turnover of more than 500
crores w.e.f. 01.04.2020. Further, to ensure the smooth roll out, these taxpayers would have
an option to voluntarily issue invoices with QR code w.e.f. 01.03.2020.
VIII. Exemption from filing of Annual Returns for small taxpayers:
• The Government has exempted the small taxpayers having annual aggregate turnover of `
2 crores and less from filing the annual returns in the format GSTR 9 for the period 2017-
18 and 2018-19 vide Notification No. 47/2019-CT dated 09.10.2019 which provides that if
these taxpayers have not filed their annual returns by the due date, it should be considered as
deemed to be furnished by due date.
IX. Changes with respect to rates on Goods:
• The changes in GST rates during the year 2019 have been made to make the GST rate
structure simpler, promote exports, address issues of credit accumulation, resolve disputes
for past periods etc. The details are mentioned below:
a) Reduction in the GST rate on supply of goods:
i. 12% to 5% on all electric vehicles
ii. 18% to 5% on charger or charging stations for Electric vehicles
iii. 18% to 12% on parts of Slide Fasteners
iv. 18% to 5% on Marine Fuel 0.5% (FO)
v. 12% to 5% on Wet Grinders (consisting stone as a grinder)
vi. 5% to Nil on Dried tamarind and Plates and cups made up of leaves/ flowers/bark
vii. 3% to 0.25% on cut and polished semi- precious stones
viii. Applicable rate to 5% on specified goods for petroleum operations undertaken under
Hydrocarbon Exploration Licensing Policy (HELP)
b) Exemptions from GST/IGST on:
i. imports of specified defence goods not being manufactured indigenously (upto 2024)
ii. supply of goods and services to FIFA and other specified persons for organizing the
Under-17 Women’s Football World Cup in India.
iii. supply of goods and services to Food and Agriculture Organisation (FAO) for specified
projects in India.
c) GST rates have been increased from, -
i. 5% to 12% on goods, falling under chapter 86 of tariff like railway wagons, coaches,
rolling stock (without refund of accumulated ITC). This is to address the concern of ITC
accumulation with suppliers of these goods.
ii. 18% to 28% +12% compensation cess on caffeinated Beverages
d) Measures for Export Promotion
i. Exemption from GST/IGST:
(a). at the time of import on Silver/Platinum by specified nominated agencies
(b). supply of Silver/Platinum by specified nominated agency to exporters for exports of
Jewellery.
ii. Inclusion of Diamond India Limited (DIL) in the list of nominated agencies eligible for
IGST exemption on imports of Gold/ Silver/Platinum so as to supply at Nil GST to Jewellery
exporters.
e) GST concession in certain cases for specific period: -
i. Exemption to Fishmeal for the period 01.07.17 to 30.09.19. There were doubts as regards
taxability of fishmeal in view of the interpretational issues. However, any tax collected for
this period shall be required to be deposited.
ii. 12% GST during the period 1.07.2017 to 31.12.2018, on pulley, wheels and other parts
(falling under heading 8483) and used as parts of agricultural machinery.
• GST rate structure on auto and auto parts has been discussed and debated significantly
in last few months. Auto sector contributes significantly to GST revenue. Therefore, any
change in GST rate of automobiles and parts will have a significant implication to revenue
and compensation requirement. The GST rates on auto sectors has been discussed in the
GST Council. The Council did not recommend any change. It was felt that temporary auto
slowdown may be attributable to certain other reasons such as lack of credit, base effect (as in
last few years auto sector has grown rapidly), and structural changes like adoption of newer
fuel standards from BS-IV to BS-VI from April 20 etc.
X. Changes with respect to rates on Services:
• The GST rates on services were fitted into 4 slabs i.e 5%, 12%, 18% and 28%, largely based
on the Pre-GST indirect tax incidence both of Centre and States, including the embedded
taxes. These rates were recommended by the GST Council in its 14th and 15th meetings held
on 18.05.2017 and 03.06.2017 respectively.
• The said GST rate structure was reviewed by the GST Council in its subsequent meetings and
certain changes in the rate structure were recommended.
• Notably multiple reliefs from GST taxation have been provided to following categories of
services: Agriculture, farming and food processing industry, Education, training and skill
development, Pension, social security and old age support, Banking/ Finance/ Insurance
services, Government Services, Tourism and hospitality services, Construction and works
contract services, Transportation services, Hospitality and tourism industry
• Details of major decisions taken in 2019-20 for GST rates on services is as below:
a) Measures taken for Common Man during 2019-20
i. In order to boost the demand of real estate sector, with effective from 01.04.2019, GST at
effective rate of 1% without ITC on affordable residential apartments and 5% without ITC
on residential apartments outside affordable segment has been levied.
ii. Intermediate tax on development right, such as Transfer of Development Rights, long term
lease (premium), Floor Space Index has been exempted to address the cash flow issues in the
real estate sector.
iii. GST rate on hotel accommodation service are redistributed under following tax slabs:
Transaction Value per Unit (`) per day GST

` 1000 and less Nil
` 1001 to ` 7500 12%
` 7501 and more 18%
iv. GST on outdoor catering services other than in premises having daily tariff of unit of
accommodation of ` 7501 has been reduced from 18% to 5% without ITC.
b) Measures taken for MSMEs during 2019-20
i. To boost the MSME sector, with effect from 01.04.2019, composition scheme for service
providers has been introduced. The scheme can be availed by a registered person having
annual turnover upto ` 50 lakhs in the preceding financial year. The service providers opting
for new composition scheme can now pay GST @ 6% and would not be eligible to avail any
input tax.
ii. GST rate on supply of job work services in relation to diamonds has been reduced from 5%
to 1.5%.
iii. GST rate has been reduced from 18% to 12% on supply of all job work services, which are
not currently eligible for the 5% rate (such as machine job work in engineering industry),
except supply of job work in relation to bus body building which would remain at 18%.
Annex 2
Major measures taken for Direct taxes during 2019-20 and other measures
A. Summary of important measures announced in the Union Budget 2019-20:
• Reduction in corporate tax rate - The rate of income-tax for companies with a turnover
up to ` 400 crore in FY 2017-18 has been reduced to 25 per cent as against prevailing rate
of 30% for others.
• Provisions of Tax Deducted at Source (TDS) – It has been provided that:
• deduction of TDS at the rate of 5% is to be done by individual or HUF on payments
made to contractors or professionals exceeding ` 50 lakhs;
• a deduction at the rate of two per cent is to be done on cash withdrawal in excess of
one crore rupees in aggregate during the year from a banking company/cooperative
bank/post office unless the persons making the withdrawals have been exempted;
• while deducting TDS of one percent on the consideration paid for purchase of
immovable property, the consideration shall include all charges of the nature of club
membership fee, car parking fee, electricity and water facility fees, maintenance fee,
advance fee or any other charges of similar nature, which are incidental to transfer of
the immovable property;
• at the time of pay out of any sum under life insurance policy, TDS will be deducted at
the rate of five per cent on income component of the pay-out i.e. sum paid out minus
amount of premium paid.
• that in case of non-deduction of TDS on payment made to a non-resident, the deductor
will not to be considered as assessee in default, if the non-resident has filed ITR
declaring such income before the due date of filing of return.
• Deemed accrual of gift made to a person outside India- It has been provided that certain
gifts made by residents to persons outside India on or after 05.07.2019, shall be income
deemed to accrue or arise in India subject to provisions of Double Taxation Avoidance
Agreement (DTAA) between India and the foreign country.
• Mandatory furnishing of ITR- It has been provided that persons entering into high value
transactions such as having a deposit of an amount/aggregate of the amounts exceeding one
crore rupees in one or more current account, incurred expenditure of an amount/aggregate
of the amounts exceeding two lakh rupees for himself or any other person foreign travel,
has paid an electricity bill of an amount/aggregate of the amounts exceeding one lakh
rupees or fulfils any other prescribed condition shall be mandatorily required to file ITR.
• Interchangeability of PAN and Aadhaar – It has been provided that in case of a person
who does not have PAN but has Aadhaar, PAN will be allotted to such person on the basis
of Aadhaar if the person enters into certain reportable transactions. Further, a person who
has linked his Aadhaar to his PAN can use Aadhaar instead of his PAN wherever required.
• Pre-filling of return - Pre-filled Income tax Returns (ITR) have been provided to individual
taxpayers with income from salary, house property, capital gains from securities, bank
interest, dividends and various tax deductions. Information regarding these incomes and
deductions are being collected from concerned sources such as banks, mutual funds, EPFO
etc. to enable pre-filling. The scope of furnishing of Statement of Financial Transactions
(SFT) has been widened by requiring more organisations/institutions to submit information
in respect of financial transactions facilitated or undertaken by them.
• Promoting Digital Payments – In order to promote digitalization of the economy it has
been provided that certain prescribed electronic modes will also be acceptable forms of
electronic modes of payment under the Act. Further, section 269SU has been introduced in
the Income-tax Act, 1961(the Act) to provide that with effect from 01.11.2019 every person,
carrying on business in which the total sales exceeds ` 50 cr. in the previous financial
year, shall be required to provide a facility for accepting payment through the prescribed
electronic modes, in addition to the facility for other electronic modes of payment, if any.
• Incentives to International Financial Services Centre (IFSC) - Several direct tax
incentives have been provided to an IFSC such as 100 % profit-linked deduction under
section 80-LA of the Act in any ten-year block within a fifteen-year period, exemption
from dividend distribution tax from current and accumulated income to companies and
mutual funds, exemptions on capital gain to Category-III AIF and interest payment on loan
taken from non-residents.
• Incentives to certain Non-banking Financial Companies (NBFCs)- It has been provided
that interest on bad or doubtful debts made by RBI-regulated NBFCs will be taxed on
receipt basis and deduction on such interest payment will also be allowed to borrowers
on payment basis if it is actually paid on or before the due date of furnishing the return of
income of the relevant previous year.
• Relaxation in conditions of special taxation regime for offshore funds- Section 9A of
the Act which provides for the conditions under which the operation of an offshore fund
will not constitute business connection in India has been amended to provide that minimum
corpus amount of ` 100 crore can be met by a new fund, either within six months of it
being set up or by the end of the financial year, whichever is later and the renumeration
paid to the fund manager should be at least equivalent to the amount calculated as per the
prescribed manner.
• Promotion of Electric Vehicles – Section 80EEB has been inserted to the Act to provide
deduction in respect of interest on loan taken for purchase of an electrical vehicle from any
financial institution up to a maximum of ` 1,50,000/- subject to the condition that the loan
has been sanctioned during the period beginning on the 01.04.2019 to 31.03.2023.
• Exemption of certain interest income of a non-resident - In order to incentivize low
cost foreign borrowings, section 194LC and section 10 of the Act have been amended
to provide that the interest income on account of interest payable by an Indian company
or a business trust to a non-resident, including a foreign company, in respect of rupee
denominated bond issued outside India during the period 17.09.2018 to 31.03.2019 shall
be exempt.
• Housing for All- For realization of the goal of affordable housing for all, section 80IBA
of the Act has been amended to extend the profit linked deduction up to 31.03.2020 for
developers of affordable housing projects. Section 80EEA has also been amended to
provide an additional deduction of up to ` 1,50,000/- for interest paid on loans borrowed
up to 31.03.2020 for purchase of an affordable house valued up to ` 45 lakh.
• Incentives to National Pension System (NPS) subscribers - The limit of exemption
has been increased to 60 per cent of the total amount payable to the person at the time
of closure or his opting out of the NPS scheme. Section 80 CCD has been amended to
increase the limit from 10 to 14 per cent of contribution made by the Central Government
to the account of its employee. In addition, any amount paid or deposited by a Central
Government employee as a contribution to Tier-II account of the new pension scheme
shall be eligible for deduction under section 80C subject to the specified conditions.
• Incentives for start-ups – To facilitate ease of doing business in the case of an eligible
start-up, it has been provided to allow previous year losses to be carried forward and
set off against the income of the previous year if the existing shareholders continue as
shareholders in the closely held eligible start-up, irrespective of the change in shareholding
pattern. Further the period of exemption of capital gains arising from sale of residential
house for investment in start-ups up has been extended up to 31.3.2021.
• Incentives for Category II Alternative Investment Fund (AIF)- In order to facilitate
venture capital undertakings, section 56 of the Act has been amended to exempt Category
II AIF from payment of tax on the excess amount of consideration received, in case when
the aggregate consideration received for issue of shares exceeds the fair market value.
• Incentive for resolution of distressed companies – It has been provided that distressed
companies whose Board of Directors have been suspended by the NCLT and temporary
directors have been appointed on the recommendation of the Central Government and a
change in the shareholding has taken place in accordance with a resolution plan approved
by NCLT, then such companies will be allowed to carry forward and set off their losses.
• Exemption from deeming of fair market value of shares for certain transactions -
It has been provided that certain class of persons will be exempted from the provisions
relating to deeming of fair market value of shares while computing capital gains and
deemed gift, in case the parties to the transaction have no control over the determination
of price of shares.
• Tax on buy-back of shares of listed companies- Section 115QA of the Act has amended
to provide that tax on the buy-back of shares of listed companies will be applicable. The
Taxation Laws Amendment, Act (2019) (TLAA) amended the date of effectivity to provide
that buy-back tax on listed shares will not apply in case of buy-backs announced on or
before 05.07.2019.
• Cancellation of registration of exempt institution- It has been provided that a charitable
institution/trust which is exempt under the Act, is required to comply with the provisions
of any law which is material for its purpose, violation of which will lead to cancellation of
the registration.
• Facilitating demerger of Ind-AS compliant companies- Section 2 of the Act has been
amended to provide that in case of demerger, the requirement of recording property and
liabilities at book value by the resulting company shall not be applicable in a case where the
property and liabilities of the undertakings received by it are recorded at a value different
from the value appearing in the books of account of the demerged company immediately
before the demerger in compliance to the Indian Accounting Standards.
• Modification of return of income filed in consequence to signing of the Advance
Pricing Agreement (APA) - Section 92CD of the Act has been amended to clarify that in
cases where assessment or reassessment has already been completed and modified return
of income has been filed by the tax payer pursuant to signing of APA, the total income is
to be computed accordingly by the Assessing Officer.
• Secondary Adjustment- In order to make the secondary adjustment regime more effective
and easy to comply with, section 92CE has been amended to, inter alia, provide that the
excess money may be repatriated from any of the associated enterprises of the assessee
which is not resident in India and in a case where the excess money or part thereof has not
been repatriated in time, the assessee will have the option to pay additional income-tax at
the rate of eighteen per cent on such excess money or part thereof which will be considered
as the final payment of tax and no credit shall be allowed in respect of the amount of tax
so paid.
• Concessional rate of Short-term Capital Gains (STCG) tax to certain equity-oriented
fund of funds – In order to incentivise fund of funds set up for disinvestment of Central
Public Sector Enterprises (CPSEs), the concessional rate of tax for short-term capital gains
has been extended in respect of transfer of units of such fund of funds.
• Pass through of losses in cases of Category I and Category II AIF - Section 115UB of
the Act has been amended to provide pass through of certain losses in cases of Category I
and Category II AIF.
• Definition of the “accounting year” in section 286 – Section 286 of the Act which
provides for furnishing of a Country-by Country Report (CbCR) by a parent entity or
alternate reporting entity (ARE) resident in India of an international group of which it is a
constituent , has been amended to provide that in case when the CbCR is to be furnished
by the ARE, the reporting accounting year shall be the one applicable to the parent entity.
• Maintenance of Master File- Section 92D of the Act has been amended to provide that the
Master File will be maintained by a constituent entity of an international group resident in
India, even when there is not international transaction undertaken by the constituent entity.
• Determination of penalty for under reporting of income – Section 270A of the Act has
been amended to provide a manner of computing the quantum of penalty in a case where
the person has under-reported income and furnished his return for the first time under
section 148.
• Prosecution in case of failure to file return of income- It has been provided that
prosecution for failure of filing return of Income shall not be initiated in cases where
the total tax payable after adjusting for self-assessment tax and tax collected at source in
addition to other taxes already paid does not exceed ` 10,000/-.
• Recovery of tax in pursuance of agreements with foreign countries- It has been
provided that in case where a tax defaulter is resident in India or other any country, the
relevant tax recovery officer having jurisdiction over that person can recover tax against
the properties of the said defaulter (irrespective of whether details of property are available
or not) in respective countries.
• Claim of refund- The procedure for claiming of refund has been simplified by amending
section 239 of the Act so as to provide that every claim for refund shall be made by
furnishing return in accordance with the provisions of section 139 of the Act.
B. Other Measures taken during the year 2019-20
• The Taxation Laws (Amendment) Ordinance, 2019 was promulgated on 20.09.2019.
Subsequently the Ordinance has been replaced by the TLAA which provides that:
• existing domestic companies may opt for a concessional tax regime at an effective tax
rate of 25.17% (22% tax, plus surcharge at 10% and cess at 4%), if they do not avail
the specified deductions and incentives and fulfill certain pre-conditions.
• new manufacturing domestic companies set up on or after 01.10.2019 and which
commence manufacturing or production by 31.03.2023 may opt to be taxed at an
effective tax rate of 17.16% (15% tax, plus surcharge at 10% and cess at 4%), provided
that they do not avail of any specified incentives or deductions and fulfill certain pre-
conditions.
• the companies opting for the concessional tax regime will not be required to pay
MAT.
• for companies which do not opt for the concessional tax regimes, the rate of MAT has
been reduced from 18.5% to 15.5%.
• the enhanced surcharge introduced vide the Finance (No.2) Act, 2019 will not apply
on the capital gains arising on account of transfer of certain securities and units on
which securities transaction tax has been paid. The enhanced surcharge will also
not apply to the capital gains income of FPIs arising out of transfer of any security
including derivatives, having concessional tax regime
• Prescribed electronic modes for purpose of section 269SU – It has been notified vide
Notification No. 105/2019 dated 30.12.2019 through GSR. 960 (E) published in the Official
Gazette, that with effect from 01.01.2020, any debit card powered by Rupay, Unified
Payments Interface(UPI)(BHIM-UPI) and Unified Payments Interface Quick Response
Code (UPI QR Code)(BHIM-UPI QR Code) shall be the prescribed electronic modes as
mandated under section 269SU, for accepting payments by businesses whose total sales
exceeds ` 50 crore in the year immediately preceding the financial year.
• Enhanced Depreciation on Automobiles - In order to provide relief to tax payers
purchasing new vehicles for the purpose of business or profession, enhanced depreciation
of 30 % for motor cars and 45 % for motors buses/lorries has been provided with effect
from 23.08.2019 vide Notification no. 69/2019 dated 20.09.2019 through GSR No. 679(E)
published in the Official Gazette.
• E-Assessment Scheme-2019- In order to remove the existing human interface and personal
interaction prevailing in the assessment procedure, a scheme of faceless assessment in
electronic mode involving no human interface has been notified vide Notification No.
61/2019 dated 12.09.2019 through S.O. 3264(E) published in the Official Gazette.
• Simplification of compliance norms for Startups - A Start-up Cell under the aegis of
Member (IT&C), CBDT has been constituted to redress grievances and to address various
tax related issues in the cases of Start-ups. A consolidated circular clarifying the provisions
pertaining to assessment of Startups has also been issued which clarifies that the outstanding
income-tax demand relating to additions made relating to angel tax would not be pursued
and no communication in respect of outstanding demand would be made with the Start-up
entity. Further, other income-tax demand of the Start-ups would not be pursued unless the
demand was confirmed by ITAT.
• Document Identification Number (DIN)- Every communication of the department
whether it is related to assessment, appeals, investigation, penalty, and rectification among
other things issued from 01.10.2019 onwards will mandatorily have a computer-generated
unique document identification number (DIN). Any communication such as tax notice,
summon or letter issued to any corporate or individual tax payer will be invalid without
this number.
• Reduction in Litigation - The monetary thresholds for filing of departmental appeals
have been raised from ` 20 lakh to ` 50 lakh for appeal before ITAT, from ` 50 lakh to
` 1 crore for appeal before High Court and from ` 1 crore to ` 2 crore for appeal before
Supreme Court. Pending appeals involving tax effect lower than these thresholds shall also
be withdrawn or not pressed by the Department.
• Relaxation in norms for prosecution – It has been provided that prosecution in appropriate
cases will be launched only if the quantum of tax evasion is above a minimum threshold.
Further, in cases where evasion is below the minimum monetary threshold, launch of
prosecution has to be approved by a collegium comprising of two high ranking officers.
Further, the 12-month time limit for filing compounding application has been relaxed as a
one-time measure, to mitigate hardship in genuine cases.

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Fiscal Developments

Figure 2: Trends in Deficits

Table 1: Central Government’s Fiscal Parameters

Capital Expenditure 1.97 2.53 2.85 2.63 3.08 3.39

Table 2: Growth rate of Central Government’s Fiscal Indicators ( in per cent)

Source: Union Budget Documents & CGA

2.8 The direct taxes were estimated at 6.3 Non-Tax Revenue

Figure 4: Taxes as a percent of GDP

Source: Union Budget Documents & CGA

Table 3: Trends in Non-Tax Revenue of Central Government

Non-Tax Revenue 1.98 2.51 2.73 1.93 2.36 3.13

Figure 5: Composition of Non-debt receipts of Central Government

Source: Union Budget Documents & CGA

Table 4: Major Items of Revenue Expenditure

Table 5: Transfers to States (in ` lakh crore)

Figure 7: Central Government transfers to States

Source: Union Budget Documents

Table 6: Fiscal Outcome for 2019-20 (till November 2019)

7 Non-debt receipts 20.83 8.97 10.12 49.3 48.6 3.4 12.9

Figure 8: Growth rate of fiscal indicators in 2019-20 (upto November 2019)

Source: CGA Monthly Accounts

Box 1: Major reform in corporate taxation

Existing rate New rate

Rationale behind the reform

Figure : Corporate Tax Rate across ASEAN countries

Who will benefit?

Box 2: Vector Autoregression Analysis (VAR) of GST rate rationalisation

Variable and Data

Source: Survey calculations, CSO (MOSPI), CBIC, GSTN

Box 3: Use of Behavioural parameters by GSTN to enhance voluntary compliance

Major Initiatives taken by DIPAM

Source: Department of Investment and Public Asset Management (DIPAM)

Table 7: Expenditure on major subsidies

As per Status Paper on Government Debt.

Table 8: Debt Position of the Central Government (in ` Lakh crore)

Figure 9: Trend in Centre’s Debt-GDP ratio

Source: Various issues of Status Paper on Government Debt; P: Provisional

Figure 10: GDP growth and growth in Outstanding Liabilities

Source: Various issues of Status Paper on Government Debt; P: Provisional

Figure 11: Maturity Profile of Outstanding Dated Central Government Securities

STATE FINANCES in revenue expenditure, whereas the capital

Table 9: Fiscal Indicators of States

Figure 12: Revenue Receipts of States

Figure 13: Major deficit and debt indicators of States

(2015-20). As per the recommendation of in 2016-17 to seven eligible States, ` 12,873

Figure 14: Trends in General Government Debt and Deficits

Transaction Value per Unit (`) per day GST

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