Thursday Trivia ~ Key Eventful Budgets of the Past that shaped our Present!

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Thursday Trivia ~ Key Eventful Budgets of the Past that shaped our Present!


Budget of 1991 – Era of Globalization, Privatization and Liberalization

Ex-Prime Minister Manmohan Singh is regarded as one of the key economists under the leadership of then Prime Minister Narsimha Rao who opened the closed doors of our economy to the World. The era up to 1991 is classified as License Raj where people had to wait several years for a gas connection, telephone connection and even a scooter! Today’s generation doesn’t believe that such a time even existed.

Kids too laugh when I tell them that we had to wait for several hours to speak with our relatives who stayed in other part of the country, these days they simply do a video call even to other countries and it feels as if we were never apart!

The landmark move in the Budget of ’91 has not only opened up our economy but also our minds. We have seen a good amount of jobs being created and Indian companies sending their young talent to foreign lands. Companies such as Infosys, TCS has made India a household name in the software industry.

These changes helped us change the shape of our economy. Form a country that was an agricultural economy we shifted to manufacturing and eventually a service based economy. This was also a milestone which led to introduction of private sectors in industries where only government functioned, Telecom, Television channels, Airlines and so on and so forth.

Some budgets simply change the course of History and 1991 Union Budget was the one!


The Gift Tax Saga

India has had a Love – Hate relationship with Gift Tax since independence.

In 1958, Government introduced Gift Tax Act wherein the gifts were taxed in the hands of gift giver at a flat rate of 30% with a basic exemption of Rs. 30,000/-.

However, Gift Tax Act, 1958 was abolished in the budget of 1998 and the giver as well as the recipient was not required to pay taxes on such transactions.

But in the budget of 2004, Gift Tax saw a backdoor entry through Income from Other Sources.

The major shift being that in 1958, Gift Tax was a giver based taxation and in 2004, as we know it today it became a recipient based taxation system. So rightfully the person who receives the gift is taxed.

However, a few exemptions are also provided and the term ‘relatives’ was used where a complete exemption was given where donor and donee were related to each other falling in the purview of Income Tax Act. There is also an exemption provided for any sum of money received on marriage as gift from anyone. The provision has been evolving ever since it was introduced in 2004.

“There may be liberty and justice for all, but there are tax breaks only for some.” – Martin A. Sullivan


The story of Indirect Taxes – VAT, Service Tax and the ultimate Goods and Services Tax

Indirect taxes are expense-based taxes. In any economy, an expense from one person is revenue for another. Since, a lot people are not under the net of income tax for the government, indirect tax applies to every Indian who spends money.

The Budget of 1986 is landmark for Indirect Taxation for India as it introduced MODVAT. Which laid the foundation in later years as Sales Tax was replaced with VAT in 2005. Similarly, Service Tax was introduced in 1993.

GST has replaced VAT and Service Tax and virtually all forms of indirect taxes. It wasn’t passed in a budget but was passed in the Parliament on 29th March 2017 as The Goods and Service Tax Act. The Act came to effect on 1stJuly 2017.

GST has been built on an Indirect Tax platform, which brings entire India under one structure. There have been a lot of discussions around its rates, although Finance Ministry looks to keep 2 rates for the future. GST has been designed to bring down price of goods and services as input credits are available and only consumer bears the tax. This takes care of costs not being inflated along the way.



LTCG stands for Long Term Capital Gain on equity investment. First of all, LTCG is applied on equities if the investor has held on to it for more than 1 year. Equities held in form of shares or mutual fund units attract short-term capital gain STCG, if they are held for less than a year. You may consider that 1 year is short period, but increasing the tenure will seriously hamper the equity market mood. Also many investors/ traders on an average tend to hold on to an investment position for a much shorter period.

Long Term Capital Gains on Equities has seen a Love – Hate relationship from various Finance Ministers over the years. While some are of the view that it must be taxed as it creates wealth, some believe it should be exempt from tax to encourage more participation in the capital markets. No prices for guessing I am from which camp.

In the Budget of 2004, LTCG on Equities was abolished and STT was brought on the transaction value of equities. The markets cheered the news!

However, last year in the Budget of 2018, Finance Minister re-introduced LTCG on Equities at 10% and all returns accrued before January 31, 2018 were grandfathered. There is a basic exemption of Rs. 1 lakh and gains above that are only taxed.

The markets had a knee jerk reaction but didn’t really crash. In fact, they are up and now touching their lifetime highs.

This simply shows that investors have tremendous faith in the future of India. Plus, the confidence for Indian businesses to create wealth for them over the long term and for that even tax is accommodated.

“There is no such thing as a good tax.” – Winston Churchill


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