Public Finance

Story hook

It is 6:00 AM, 23 July 2024, and the Lok Sabha lobby is unusually quiet. In a few hours, Finance Minister Nirmala Sitharaman will rise to deliver India's first Budget of the third Modi term. The Press Information Bureau is locked down. Tax-policy advisors at North Block have not slept for 72 hours. The Receipts Budget shows that India will collect ₹38.4 lakh crore in net tax revenue in FY 2024-25 — ₹22.07 lakh crore from direct taxes (income tax + corporate tax) and ₹16.33 lakh crore from indirect taxes (mostly GST + customs + excise on petroleum).

A nation of 140 crore will pay this. Of these, only 3% — about 8.5 crore people — file income tax returns. Of returns filed, only 60% pay any tax at all (the rest report income below exemption thresholds). The actual income-tax-paying population is roughly 5 crore, or 3.5% of citizens — and yet income tax + corporate tax + GST together fund everything from MGNREGA wages to the LCA Tejas to the Chandrayaan.

That morning, Sitharaman would change the capital gains tax regime (LTCG from 10% to 12.5%, STCG from 15% to 20% on listed equities), eliminate the angel tax on startups, propose 100% FDI in insurance, and revise the new tax regime slabs to make it sweeter. By the time she sat down at 12:18 PM, the net tax burden on a salaried earner of ₹15 lakh had dropped by about ₹17,500 — but the long-term capital gains on her mutual fund holdings would now be taxed 25% higher.

How does a country tax 140 crore people? Who pays? And does the structure even make sense?

Why this matters for UPSC

Public finance is the most heavily-tested GS-III sub-topic — 2-3 Prelims questions a year on tax-types (direct vs indirect, GST, Finance Commission, FRBM, fiscal deficit). Mains essays have appeared on tax reform (2017, 2019, 2022), GST (2017, 2019, 2023), DBT vs subsidy (2018, 2022). Interview boards routinely cross-question the candidate on Budget figures + fiscal deficit. Almost every UPSC topper's Mains answer cites "fiscal space" + "tax buoyancy" at least once.