Tax Policies Under Indira Gandhi vs. Narendra Modi: Evolution of India’s Fiscal Framework

Tax Policies Under Indira Gandhi vs. Narendra Modi: Evolution of India’s Fiscal Framework  

  

Taxation is a cornerstone of economic policy, reflecting a government’s priorities and socio-economic vision. This blog compares the tax regimes of two transformative Indian Prime Ministers—Indira Gandhi (1966–77, 1980–84) and Narendra Modi (2014–present)—highlighting their approaches to taxation and fiscal policy.  

Taxation Under Indira Gandhi’s Era

1. Progressive Taxation & Socialist Goals

- High Income Tax Rates: During the 1970s, India’s income tax system was steeply progressive. The highest slab reached 97% (including surcharges) for incomes above ₹2 lakh (≈₹50 lakh today, adjusted for inflation).  

- Wealth Redistribution: Policies focused on reducing inequality via wealth tax (up to 3.5%) and estate duty (85% on inherited assets).  

- Post-1971 war, resource mobilization for welfare schemes and public-sector growth drove these rates.  

2. Economic Impact  

- Compliance Issues: Sky-high rates led to tax evasion and a parallel economy.  

- Social Equity: Revenue funded rural programs (e.g., Garibi Hatao) and nationalization of banks/industries.  

Taxation Under Narendra Modi’s Era

1. Simplification & Growth-Centric Reforms

- Lower Tax Rates: The highest slab today is 30% for incomes above ₹10 lakh (under the old regime). A new optional regime offers lower rates (e.g., 5–20%) but removes deductions.  

- Corporate Tax Cuts: Reduced to 22% for existing firms (2019) and 15% for new manufacturing units to spur investment.  

- GST Implementation (2017): Replaced 17 indirect taxes with a unified system, easing compliance.  

2. Economic Impact  

- Formalization & Digitization: GST, demonetization (2016), and digital platforms (e.g., TDS automation) boosted transparency.  

- Ease of Living: Middle-class tax relief via slab adjustments and exemptions like ₹7 lakh threshold under new regime.  

Conclusion  

Indira Gandhi’s tax regime prioritized equity through aggressive redistribution, while Narendra Modi’s policies emphasize simplification, compliance, and economic growth. Both reflect India’s evolving economic priorities—from socialist foundations to globalized reforms. Understanding this shift helps contextualize today’s debates around taxation and development.  

Engage With Us: What’s your take on India’s tax evolution? Share your thoughts below!  

Sources: Income Tax Act archives, Union Budget documents, RBI reports.  

Disclaimer: This blog is for informational purposes only. Consult a financial advisor for tax-related decisions.