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Subject: Economics

  • Simplified two-rate GST Structure

    Why in the News?

    • The Group of Ministers (GoM) on Rate Rationalisation has accepted the Centre’s proposal to simplify GST into a two-rate structure.
    • The recommendation will now be placed before the GST Council for final approval.

    https://www.thehindu.com/business/Economy/gom-on-rate-rationalisation-approves-centres-two-rate-gst-proposal/article69959558.ece 

    About Goods and Services Tax (GST):

    • Nature: Comprehensive, multi-stage, destination-based indirect tax on goods and services.
    • Introduction: Launched July 1, 2017, via the 101st Constitutional Amendment Act, 2016.
    • Replaced Taxes: Subsumed excise duty, value-added tax (VAT), service tax, etc.
    • Objectives: One Nation–One Tax, reduce cascading taxation, simplify compliance, expand tax base.
    • Structure: Five slabs – 0%, 5%, 12%, 18%, 28%, with cess on luxury/sin goods (tobacco, cars, online gaming).
    • Exemptions: Essential goods (food, medicines, education items) in 0% slab. Petroleum, alcohol, and electricity remain outside GST.

    Proposed Two-Rate GST Structure:

    • Reforms: Removal of 12% and 28% slabs; only 5% and 18% to remain.
    • Reclassification: 99% of 12% items → 5% slab; 90% of 28% items → 18% slab.
    • New Slab: 40% rate for demerit goods (tobacco, luxury cars, real-money gaming).
    • Cess: Compensation cess on 28% items to end.
    • Timeline: Implementation expected October 2025 (Diwali).

    Policy Rationale & Concerns:

    • Simplification: From four slabs to two, easing compliance and transparency.
    • Consumption Boost: Lower rates on daily goods to benefit households and Micro, Small and Medium Enterprises (MSMEs).
    • Compliance Gains: Less scope for disputes, litigation, and evasion.
    • Economic Signal: Projects confidence in domestic consumption as growth driver.
    • State Concerns: States, including Kerala, warn of revenue loss; call for compensation mechanism.
    [UPSC 2018] Consider the following items:

    1. Cereal grains hulled 2. Chicken eggs cooked 3. Fish processed and canned 4. Newspapers containing advertising material

    Which of the above items is/are exempted under GST (Goods and Services Tax)?

    Options: (a) 1 only (b) 2 and 3 only (c) 1, 2 and 4 only *(d) 1, 2, 3 and 4

     

  • Kalai-II Hydroelectric Project

    Why in the News?

    The Arunachal Pradesh State Pollution Control Board (APSPCB) conducted a public hearing for the proposed 1,200 MW Kalai-II hydroelectric project in Anjaw district.

    About Kalai-II Hydroelectric Project:

    • Location: Anjaw District, Arunachal Pradesh, on the Lohit River (tributary of the Brahmaputra).
    • Capacity: 1,200 MW (six turbines of 190 MW each + one unit of 60 MW).
    • Project Type: Run-of-river with pondage.
    • Key Features: Concrete gravity dam, diversion tunnels, underground powerhouse, surge chamber, and tailrace tunnel.
    • Power Generation: Estimated 4.85 TWh annually; free power worth ₹318 crore/year for the state.
    • Equity: Arunachal Pradesh holds 26% stake.

    Strategic Importance:

    • Energy Security: Expands India’s renewable energy portfolio and hydropower capacity in the North-East.
    • Geopolitical Context: Strengthens India’s presence in the sensitive Brahmaputra basin bordering China.
    • Economic Boost: Contributes to state revenues through free power and Local Area Development Fund (~₹2.2 crore/year).
    • Part of Larger Push: One of 13 stalled hydropower projects in Arunachal Pradesh revived through MoAs with central PSUs, aligning with India’s clean energy targets.
    [UPSC 2008] On which one of the following rivers is the Tehri Hydropower Complex located?

    Options: (a) Alaknanda (b) Bhagirathi *(c) Dhauliganga (d) Mandakini

     

  • Minimum Public Shareholding (MPS)

    Why in the News?

    SEBI has released a consultation paper proposing changes in Minimum Public Shareholding (MPS) and Minimum Public Offer (MPO) norms for listed companies.

    What is Minimum Public Offer (MPO)?

    • Meaning: When a company launches an Initial Public Offer (IPO), it must sell a minimum number of shares to the public.
    • Analogy: Like a new shop ensuring enough goods are displayed for customers — otherwise trading is thin and controlled by a few.

    What is Minimum Public Shareholding (MPS)?

    • Concept: A company is like a cake. Promoters (founders/owners) usually keep most of it, but SEBI mandates at least 25% must be shared/sold with the public.
    • Purpose:
      • Broader ownership and participation.
      • Fairer prices by reducing manipulation.
      • Greater accountability of companies.

    What SEBI is proposing?

    • Flexibility: Large companies find it difficult to release big chunks of shares at once; rules will be eased.
    • Extended Timelines:
      • Companies valued at ₹50,000–1,00,000 crore now get up to 10 years (instead of 5) to meet 25% MPS.
      • They must reach 15% in 5 years first, then 25% in 10 years.
    • Reduced Burden: For very large companies, the initial Minimum Public Offer (MPO) will be lowered.

    Significance of the Move:

    • Market Stability: Selling too many shares too quickly is like flooding the market — prices may fall even if the company is strong.
    • Benefits:
      • More big companies will list in India.
      • Investors can enter gradually without sudden shocks.
      • Encourages fund-raising while maintaining fair trading.
    [UPSC 2024] Consider the following statements:

    I. India accounts for a very large portion of all equity option contracts traded globally, thus exhibiting a great boom.

    II. India’s stock market has grown rapidly in the recent past, even overtaking Hong Kong’s at some point in time.

    III. There is no regulatory body either to warn small investors about the risks of options trading or to act on unregistered financial advisors in this regard.

    Which of the statements given above are correct?”

    Options: (a) I and II only * (b) II and III only (c) I and III only (d) I, II and III

     

  • Is the new Income Tax law more accessible? 

    Introduction

    In August 2025, Parliament passed the Income Tax Bill, 2025, a shorter and simplified legislation with 23 chapters (down from 47) and 536 sections (down from 819). The Bill aims to reduce discretion with clearer provisions, introduce taxpayer-friendly reforms like longer timelines for return updation, and curb harassment. However, it has also expanded the powers of tax officials, especially over digital information and personal data, raising concerns about privacy and misuse.

    Need for Overhauling the 1961 Income Tax Framework

    1. Obsolete framework: The Income Tax Act, 1961 had become outdated, riddled with amendments, and difficult for laypersons to interpret.
    2. Harassment potential: Excessive discretion allowed officials to harass taxpayers.
    3. Structural reform: New law cuts down chapters from 47 to 23 and sections from 819 to 536, simplifying compliance.
    4. Greater clarity: More tables (57, up from 18) and formulae (46, up from 6), along with examples to aid understanding.

    From Draft Bill to Final Law: The Legislative Journey

    1. Initial draft (Feb 2025): Introduced in Parliament but referred to a Select Committee given the Bill’s significance.
    2. Committee review: Headed by Baijayant Panda, with MPs across parties; submitted a detailed report in July 2025.
    3. Withdrawal & replacement: Government withdrew the earlier version on August 8, 2025, to incorporate committee recommendations.
    4. Final Bill (Aug 11, 2025): Introduced and passed the same day, avoiding confusion through multiple versions.

    Key Reforms and Structural Simplifications:

    1. No slab changes: Finance Minister clarified tax rates and slabs remain unchanged.
    2. Technical refinements: Clearer provisions for Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT), separated into sub-sections.
    3. Taxpayer-friendly features: Returns can be updated up to 4 years from the end of the relevant assessment year without penalty; Assessment reopening period reduced to 5 years.

    Simplification Gains and Emerging Concerns

    1. Expanded search powers: Tax officers can now demand passwords of electronic devices, emails, and social media accounts.
    2. Override access: Officials may bypass access codes to computer systems if passwords are not shared.
    3. Privacy concerns: Unlike earlier provisions (limited to inspection and lock-breaking), the new law extends to personal digital data, raising red flags.

    Government’s Rationale for Expanding Digital Powers

    1. Rationale: Much of financial data today is exchanged via messaging apps, emails, or stored digitally.
    2. Committee stance: Though some dissent was recorded, the Select Committee accepted the government’s view that these provisions are essential for effective investigation.

    Conclusion

    The Income Tax Bill, 2025 is a watershed reform, simplifying one of India’s most complex laws. While the codification of taxpayer-friendly provisions marks a progressive step, the enhanced surveillance powers granted to tax authorities highlight the thin line between efficiency and overreach. The challenge ahead lies in ensuring that simplification does not come at the cost of citizens’ trust and constitutional rights.

    Value Addition for UPSC
    • Governance angle (GS-II): Balancing simplification of laws with citizen rights and privacy.
    • Economic reforms (GS-III): Tax rationalisation improves compliance and ease of doing business.
    • Ethics (GS-IV): Dilemma of state surveillance vs. individual liberty; Kantian duty-based ethics vs. utilitarian approach.
    • Comparative context: Similar debates exist globallye.g., U.S. IRS’s digital access powers vs. EU’s stricter GDPR protections.

    PYQ Relevance

    [UPSC 2020] Explain the rationale behind the Goods and Services Tax (Compensation to States) Act of 2017.How has COVID-19 impacted the GST compensation fund and created new federal tensions?

    Linkage: The GST Compensation Act, 2017 aimed to build Centre–State trust during the GST transition but COVID-19 strained revenues, sparking federal tensions. Similarly, the Income Tax Bill, 2025 seeks to simplify direct taxes to build citizen trust but raises concerns over state overreach in digital surveillance. Both show that taxation is ultimately about trust and legitimacy in governance.

    Practice Mains Question

    The Income Tax Bill, 2025 seeks to simplify India’s tax regime but also introduces stronger surveillance powers for officials. Discuss the balance between efficiency, transparency, and taxpayer rights. (250 words)

    Mapping Microthemes for GS Papers

    1. GS-I: Evolution of economic policies post-Independence.
    2. GS-II: Governance, legislative reforms, fundamental rights (privacy).
    3. GS-III: Fiscal reforms, tax policy, ease of doing business.
    4. GS-IV: Ethics of surveillance, transparency, accountability.

  • 23% of PM Jan Dhan accounts inoperative

    Why in the news?

    The Government informed Parliament that 23% of the 56.04 crore PM Jan Dhan Yojana accounts are inoperative.

    About Pradhan Mantri Jan Dhan Yojana (PMJDY):

    • Launch: Introduced in 2014 as the world’s largest financial inclusion mission.
    • Objective: To provide banking to the unbanked, insurance to the unsecured, and credit to the unfunded.
    • Accounts: Basic Savings Bank Deposit (BSBD) accounts with zero balance, minimal paperwork, and e-KYC facility.
    • Benefits: RuPay debit card with accident insurance, overdraft, micro-insurance, and pension coverage.

    Key Features:

    • Access: Universal banking through branches and Business Correspondents.
    • Overdraft: Up to ₹10,000 for eligible account holders.
    • Insurance: Accident cover of ₹1 lakh (₹2 lakh for new accounts post-2018); life cover of ₹30,000 for accounts opened between August 2014–January 2015.
    • Interoperability: Enabled via RuPay cards and Aadhaar-linked platforms.
    • Post-2018 Expansion: Coverage extended to all unbanked adults, overdraft limit enhanced, and eligibility age increased from 60 to 65 years.
    • Direct Benefit Transfers: Strengthened subsidy delivery through the JAM Trinity (Jan Dhan–Aadhaar–Mobile).

    Do you know?

    As per the Reserve Bank of India (RBI) guidelines (2009), an account is considered dormant if no transaction occurs for over two years.

     

    [UPSC 2015] Pradhan Mantri Jan-Dhan Yojana’ has been launched for

    Options:

    (a) providing housing loan to poor people at cheaper interest rates

    (b) promoting women’s Self-Help Groups in backward areas

    (c) promoting financial inclusion in the country*

    (d) providing financial help to the marginalized communities

     

  • Is the new Income Tax law more accessible? 

    Introduction

    In August 2025, Parliament passed the Income Tax Bill, 2025, a shorter and simplified legislation with 23 chapters (down from 47) and 536 sections (down from 819). The Bill aims to reduce discretion with clearer provisions, introduce taxpayer-friendly reforms like longer timelines for return updation, and curb harassment. However, it has also expanded the powers of tax officials, especially over digital information and personal data, raising concerns about privacy and misuse.

    Need for Overhauling the 1961 Income Tax Framework

    1. Obsolete framework: The Income Tax Act, 1961 had become outdated, riddled with amendments, and difficult for laypersons to interpret.
    2. Harassment potential: Excessive discretion allowed officials to harass taxpayers.
    3. Structural reform: New law cuts down chapters from 47 to 23 and sections from 819 to 536, simplifying compliance.
    4. Greater clarity: More tables (57, up from 18) and formulae (46, up from 6), along with examples to aid understanding.

    From Draft Bill to Final Law: The Legislative Journey

    1. Initial draft (Feb 2025): Introduced in Parliament but referred to a Select Committee given the Bill’s significance.
    2. Committee review: Headed by Baijayant Panda, with MPs across parties; submitted a detailed report in July 2025.
    3. Withdrawal & replacement: Government withdrew the earlier version on August 8, 2025, to incorporate committee recommendations.
    4. Final Bill (Aug 11, 2025): Introduced and passed the same day, avoiding confusion through multiple versions.

    Key Reforms and Structural Simplifications:

    1. No slab changes: Finance Minister clarified tax rates and slabs remain unchanged.
    2. Technical refinements: Clearer provisions for Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT), separated into sub-sections.
    3. Taxpayer-friendly features: Returns can be updated up to 4 years from the end of the relevant assessment year without penalty; Assessment reopening period reduced to 5 years.

    Simplification Gains and Emerging Concerns

    1. Expanded search powers: Tax officers can now demand passwords of electronic devices, emails, and social media accounts.
    2. Override access: Officials may bypass access codes to computer systems if passwords are not shared.
    3. Privacy concerns: Unlike earlier provisions (limited to inspection and lock-breaking), the new law extends to personal digital data, raising red flags.

    Government’s Rationale for Expanding Digital Powers

    1. Rationale: Much of financial data today is exchanged via messaging apps, emails, or stored digitally.
    2. Committee stance: Though some dissent was recorded, the Select Committee accepted the government’s view that these provisions are essential for effective investigation.

    Conclusion

    The Income Tax Bill, 2025 is a watershed reform, simplifying one of India’s most complex laws. While the codification of taxpayer-friendly provisions marks a progressive step, the enhanced surveillance powers granted to tax authorities highlight the thin line between efficiency and overreach. The challenge ahead lies in ensuring that simplification does not come at the cost of citizens’ trust and constitutional rights.

    Value Addition for UPSC
    • Governance angle (GS-II): Balancing simplification of laws with citizen rights and privacy.
    • Economic reforms (GS-III): Tax rationalisation improves compliance and ease of doing business.
    • Ethics (GS-IV): Dilemma of state surveillance vs. individual liberty; Kantian duty-based ethics vs. utilitarian approach.
    • Comparative context: Similar debates exist globallye.g., U.S. IRS’s digital access powers vs. EU’s stricter GDPR protections.

    PYQ Relevance

    [UPSC 2020] Explain the rationale behind the Goods and Services Tax (Compensation to States) Act of 2017.How has COVID-19 impacted the GST compensation fund and created new federal tensions?

    Linkage: The GST Compensation Act, 2017 aimed to build Centre–State trust during the GST transition but COVID-19 strained revenues, sparking federal tensions. Similarly, the Income Tax Bill, 2025 seeks to simplify direct taxes to build citizen trust but raises concerns over state overreach in digital surveillance. Both show that taxation is ultimately about trust and legitimacy in governance.

    Practice Mains Question

    The Income Tax Bill, 2025 seeks to simplify India’s tax regime but also introduces stronger surveillance powers for officials. Discuss the balance between efficiency, transparency, and taxpayer rights. (250 words)

    Mapping Microthemes for GS Papers

    1. GS-I: Evolution of economic policies post-Independence.
    2. GS-II: Governance, legislative reforms, fundamental rights (privacy).
    3. GS-III: Fiscal reforms, tax policy, ease of doing business.
    4. GS-IV: Ethics of surveillance, transparency, accountability.

  • Balancing code and commerce in U.K. trade compact

    India–U.K. Comprehensive Economic and Trade Agreement (CETA), especially its Chapter 12 on Digital Trade, marks a shift from cautious digital policy to strategic global engagement. It brings major trade gains, but also sparks debate on data sovereignty and oversight. Chapter 12 of India–U.K. CETA exchanges some regulatory control for greater digital market access. Gains include mutual recognition of e-signatures, duty-free digital exports, and innovation-friendly provisions, while concerns focus on limited source-code checks and voluntary data sharing.

    Digital Gains from the Agreement

    1. Recognition of Electronic Signatures and Contracts: Both nations commit to mutual recognition, reducing paperwork for SaaS firms and lowering entry barriers for SMEs.
    2. Paperless Trade & E-Invoicing: Eases cross-border documentation and payments, enhancing trade efficiency.
    3. Zero Customs Duties on Electronic Transmissions: Preserves a Commerce Ministry–estimated $30 billion software export pipeline.
    4. Regulatory Sandboxes for Data Innovation: Encourages pilot projects that allow payments and data-driven firms to test tools under supervision, boosting credibility abroad.
    5. Duty-Free Access for Indian Merchandise: Nearly 99% of exports could enter the U.K. duty-free; textile tariffs dropping from 12% to zero will aid hubs like Tiruppur and Ludhiana.
    6. Openings in British Public Procurement: Expands market opportunities for Indian IT suppliers.
    7. Social Security Waivers: Reduces payroll costs for short-term assignments abroad by about 20%.

    Digital Costs and Concerns

    1. Source-Code Inspection Restrictions: Ban on routine checks; regulators can only demand access in investigations or court cases.
    2. Voluntary Government Data Sharing: No binding obligation; India decides what data to release, and in what format.
    3. No Automatic MFN for Data Flows: Only a forward review mechanism exists if stricter data rules appear in other agreements.
    4. Review Timelines: First formal review in 5 years; critics suggest 3-year reviews to match rapid AI developments.
    5. Domestic Readiness Gap: Digital Personal Data Protection Act, 2023 rules are pending notification; absence of clear internal processes could weaken negotiation leverage.

    Balancing Sovereignty and Openness

    1. Security Exceptions Preserved: National supervision over critical infrastructure like power grids and payment systems remains intact.
    2. Good Governance Safeguards: Prevents disguised restrictions on trade under the guise of regulation.
    3. Trusted Labs Proposal: Accrediting secure labs to review sensitive code could bridge the trust gap.
    4. Audit Trails for Cross-Border Data Flows: Ensures accountability follows the data.
    5. Institutionalised Consultations: Open, pre-negotiation dialogue to anticipate and address stakeholder concerns.

    Steps for Future Digital Treaties

    1. Integrate market openness with regulatory oversight
    2. Set three-year review cycles to adapt to technological change
    3. Develop domestic readiness before external commitments
    4. Maintain a balance between security and trade facilitation

    Conclusion

    The India–U.K. digital trade compact is both a leap and a litmus test. It affirms India’s readiness to engage strategically in global digital commerce while underscoring the necessity of robust domestic regulation. The real challenge is not in signing such pacts but in ensuring that sovereignty, security, and innovation move forward together.

    Value Addition

    Reports / Data

    1. Commerce Ministry (2024): India’s software exports via electronic transmissions valued at $30 billion annually.
    2. UNCTAD Report on Digital Economy (2023): India among top 5 global economies in digital services exports.
    3. NASSCOM 2023: Digital public infrastructure (UPI, Aadhaar, DigiLocker) key enablers of India’s digital leap.

    Case Studies / Examples

    1. UPI in G20 (2023): India pushing UPI internationalisation – similar to how digital trade pacts expand India’s reach.
    2. Singapore & Australia FTAs: Precedent for including digital trade rules, but U.K. CETA is India’s first binding digital chapter.
    3. Textile exports from Tiruppur/Ludhiana: Example of how tariff elimination + digital facilitation = trade gains.

    Concepts & Theories

    1. WTO-plus Agreements: Regional/bilateral pacts that go beyond WTO commitments (like CETA’s Chapter 12).
    2. Data Sovereignty vs Digital Openness: Core tension between national control over data and global free flows.
    3. Regulatory Sandboxes: Innovation-friendly regulatory spaces balancing innovation & oversight.

    Quotes for Enrichment

    1. Nandan Nilekani: “India has built digital public goods at population scale, something no other democracy has attempted.”
    2. UNCTAD: “The digital economy is now the fastest growing trade frontier, but also the most contested.”

    PYQ Relevance

    Though there is no direct PYQ, the digital trade compact can be used in many questions like

    [UPSC 2023] What is the status of digitalization in the Indian Economy? Examine the problems faced in this regard and suggest improvement.

    Linkage: The India–U.K. CETA’s digital trade provisions—like e-signatures, paperless trade, and zero customs duty—highlight India’s progress in integrating digitalization into global commerce. At the same time, issues like restricted source-code access, weak data protection readiness, and voluntary data sharing mirror the broader problems of digitalization in India. Thus, the pact underlines both India’s digital gains and the urgent need for domestic reforms and safeguards to fully leverage such agreements.

    Mapping Micro Themes

    1. GS-2: Trade diplomacy, sovereignty.
    2. GS-3: Digital trade, AI regulation, cybersecurity.
    3. GS-4: Transparency, public trust.

  • IBC Amendment Bill, 2025

    Why in the News?

    The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 was introduced in the Lok Sabha by Finance Minister to streamline insolvency, cut tribunal delays, and add new tools like creditor-led resolution and cross-border insolvency.

    About the Insolvency and Bankruptcy Code (IBC), 2016:

    • IBC is India’s bankruptcy law, covering corporate persons, partnership firms, and individuals.
    • Insolvency: Liabilities exceed assets; entity cannot meet obligations.
    • Bankruptcy: Legal declaration of inability to pay debts.
    • Objective: Time-bound, creditor-driven resolution to improve recovery and business confidence.
    • Regulating Authority: Insolvency and Bankruptcy Board of India (IBBI), a statutory body with members from Ministry of Finance, Ministry of Corporate Affairs, and Reserve Bank of India.
    • Adjudicating Authority:
      • National Company Law Tribunal (NCLT) for companies/LLPs.
      • Debt Recovery Tribunal (DRT) for individuals and partnership firms.

    Key Amendments Proposed in IBC (2025):

    • Creditor-Initiated Insolvency Resolution Process (CIIRP): Out-of-court creditor resolutions with NCLT approval; faster timelines and promoter involvement.
    • Group Insolvency: Joint proceedings for related companies to preserve asset value and cut costs (e.g., Videocon Group case).
    • Cross-Border Insolvency: Framework to handle overseas assets and debts, allowing Indian lenders access to foreign assets.
    • Pre-Packaged Insolvency (PPIRP): Faster, affordable restructuring route for Micro, Small, and Medium Enterprises (MSMEs) while operations continue.
    • Other Reforms: Segregated asset sales, more NCLT benches (now 16), extended claim timelines, sector-specific provisions, and debtor audits.

    Achievements of IBC:

    • Debt Resolution: Resolved ₹3.16 lakh crore in 808 cases since 2016 (CRISIL data).
    • Recovery Rate: Average recovery of 32% of admitted claims, 169% of liquidation value.
    • Comparison: Outperformed earlier mechanisms (DRT, SARFAESI Act, Lok Adalat) which achieved only 5–20% recovery.
    • Deterrence: Borrowers pre-settled ₹9 lakh crore debt to avoid IBC proceedings.
    • Large NPAs: Addressed RBI’s “Dirty Dozen” cases like Bhushan Steel, Essar Steel, Jaypee Infratech.

     

    [UPSC 2017] Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news?

    Options: (a) It is a procedure for considering ecological costs of developmental schemes formulated by the Government.

    (b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.

    (c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.

    (d) It is an important provision in ‘The Insolvency and Bankruptcy Code’ recently implemented by the Government. *

     

  • New Income Tax Bill, 2025

    Why in the News?

    Parliament has passed the Income-tax Bill, 2025, replacing the 1961 law with a leaner, simpler version free of redundant provisions and archaic language, effective April 1, 2026.

    About New Income Tax Bill, 2025:

    • Purpose: Replaces the Income Tax Act, 1961 after more than 60 years to simplify the law, remove redundant provisions, and modernise tax administration.
    • Effective Date: Comes into effect from April 1, 2026.
    • Structural Changes: Sections reduced from 819 to 536; chapters from 47 to 23.
    • Conciseness: Word count cut from 5.12 lakh to 2.6 lakh, with 39 tables and 40 formulas for clarity.
    • New Concept: Introduces “tax year” defined as April 1 to March 31.

    Key Features:

    • Refunds: Restores refund claims on belated returns by removing the earlier restriction.
    • Tax Collected at Source (TCS) Clarity: Nil TCS for Liberalised Remittance Scheme (LRS) remittances for education funded by financial institutions.
    • Corporate Tax: Corrects errors in inter-corporate dividend deduction for companies opting for concessional tax rates.
    • Alternate Minimum Tax (AMT) Alignment: Aligns AMT provisions for Limited Liability Partnerships (LLPs) with existing rates.
    • Nil-Tax Deducted at Source (TDS) Certificate: Permits taxpayers with no liability to obtain a nil-TDS certificate.
    • Transfer Pricing: Clarifies transfer pricing provisions, set-off of losses, and alignment with Section 79 on “beneficial owner.”
    • Non-Profit Organisation (NPO) Benefit: Expands exemption to 5% of total donations, instead of only anonymous donations.
    • House Property Income: Clarifies 30% standard deduction after municipal taxes.
    • Search Definition: Retains “virtual digital space” definition to include cloud storage, email, and social media accounts.
    • Data Handling: Standard Operating Procedure (SOP) to be issued for handling personal digital data seized in searches.
    [UPSC 2025] Consider the following statements: Statement I: In India, income from allied agricultural activities like poultry farming and wool rearing in rural areas is exempted from any tax. Statement II: In India, rural agricultural land is not considered a capital asset under the provisions of the Income-tax Act, 1961.

    Which one of the following is correct in respect of the above statements?

    (a) Both Statement I and Statement II are correct and Statement II explains Statement I

    (b) Both Statement I and Statement II are correct but Statement II does not explain Statement I*

    (c) Statement I is correct but Statement II is not correct

    (d) Statement I is not correct but Statement II is correct

     

  • Debunking the myth of job creation

    Why in the News?

    The government has recently approved the Employment Linked Incentive (ELI) Scheme as one of the largest fiscal commitments towards employment generation in recent years. The scale of underemployment in India is striking, over 53% of graduates are working in semi-skilled jobs and 46% of low-skill workers earn less than ₹1 lakh a year raising questions about whether such a scheme can genuinely address unemployment or will deepen structural inequalities.

    Significance of ELI Scheme:

    1. Government Approval: Cleared on July 1, 2025, with ₹99,446 crore outlay.
    2. Primary Aim: Provide fiscal incentives to employers for job creation, especially in manufacturing.
    3. Significance: Represents one of the largest government-led employment incentive packages in India.

    Issues with the ELI Scheme’s design:

    1. Employer-Centric Approach: Focuses on incentivising employers rather than directly empowering workers.
    2. Capital-Labour Asymmetry: Risks strengthening employer bargaining power while leaving workers vulnerable.
    3. Exclusion of Informal Sector: 90% of India’s workforce, largely informal, is excluded as the scheme prioritises EPFO-registered firms.
    4. Underprepared Workforce: Only 4.9% of youth have received formal vocational training, creating a mismatch between jobs and skills.

    Skill Mismatch and Underemployment Trends in India:

    1. Low Skill Utilisation: Only 8.25% of graduates work in jobs matching their qualifications.
    2. High Underemployment: 53% of graduates and 36% of postgraduates in semi-skilled or elementary roles.
    3. Wage Disparity: 46% of low-skilled workers earn < ₹1 lakh/year, while only 4.2% of specialised graduates earn ₹4–8 lakh/year.
    4. Inefficient Education-to-Employment Pipeline: Shows systemic disconnect between education system and industry needs.

    Sectoral Imbalance and Employment Implications:

    1. Manufacturing Bias: Targets manufacturing despite its declining employment elasticity.
    2. Employment Share: Manufacturing employs <13% of total workforce, while agriculture and services employ ~70%.
    3. Potential Marginalisation: Rural youth, women, and informal workers, largely in low-skill services/agriculture, risk being left out.
    4. Automation Pressure: Capital-intensive manufacturing growth reduces labour absorption.

    Risks to Job Quality and Employment Sustainability:

    1. Disguised Unemployment: May encourage enterprises to relabel old jobs as new to claim subsidies.
    2. Structural Inequality: Channels fiscal benefits to already formalised enterprises.
    3. Bypassing Informal Workforce: Misses the majority of new labour market entrants in the informal sector.
    4. Stagnant Productivity: Without skill investment, job creation may remain low-quality.

    Policy Alternatives for Equitable Employment Generation:

    1. Investment in Skilling: Strengthen vocational training to prepare low-skilled workers
    2. Education Reforms: Align curricula with industry demands
    3. Social Security Inclusion: Extend benefits to informal workers for equity
    4. Shift to Long-Term Strategy: Focus on productivity, job quality, and labour rights rather than short-term headcount increases.

    Conclusion

    The ELI Scheme reflects a high-investment, employer-focused strategy that risks deepening existing inequalities in India’s labour market. Without addressing the skill mismatch, informal sector exclusion, and sectoral imbalances, the scheme may generate headcount without creating sustainable livelihoods. A shift towards worker-centric, skill-driven, and socially inclusive employment policies is essential to ensure equitable economic growth.

    Value Addition

    Economic Survey 2024–25

    • Key Insight: Reveals that only 8.25% of graduates are in jobs matching their qualifications, with 53% of graduates underemployed in semi-skilled or elementary roles.
    • Relevance: Strengthens arguments on the education–employment disconnect and the urgent need for targeted skilling reforms.
    • Application: Can be quoted in answers on unemployment, skill development, or human capital formation.

    Dual Labour Market Theory

    • Concept: The labour market is split into two segments, formal (primary) with stable jobs, better wages, and benefits; and informal (secondary) with insecure, low-paid work and no social protection.
    • Relevance to ELI Scheme: The scheme’s EPFO-based targeting inherently supports the formal sector while neglecting the 90% informal workforce, deepening this divide.
    • Application: Useful in analysing structural inequality in employment policies.

    Employment Elasticity

    • Definition: The responsiveness of employment growth to GDP growth.
    • India’s Case: Manufacturing’s employment elasticity is declining due to automation and capital-intensive processes.
    • Relevance to ELI Scheme: Explains why heavy focus on manufacturing may not yield proportional employment gains.
    • Application: Adds depth when evaluating sectoral choices in employment policy.

    ILO’s “Decent Work” Agenda

    • Framework: Promotes productive employment, rights at work, social protection, and social dialogue.
    • Relevance: The ELI Scheme lacks strong components on worker rights, social protection for informal workers, or job quality improvement — thereby falling short of ILO’s standards.
    • Application: Ideal for international comparison in labour policy answers.

    Disguised Unemployment

    • Definition: A situation where more workers are employed than necessary, resulting in negligible or zero marginal productivity.
    • Indian Context: Common in agriculture and informal services.
    • Relevance to ELI Scheme: Risk of enterprises relabeling existing jobs as new to claim subsidies, creating apparent employment without productivity gains.
    • Application: Can be linked to inefficiencies in job creation schemes and low productivity traps.

    Mapping Microthemes:

    GS Paper Theme Micro Theme Example from Article
    GS Paper III Economy Employment generation policies ₹99,446 crore ELI Scheme
    GS Paper III Economy Formal–informal sector divide 90% informal workforce excluded
    GS Paper III Economy Skill mismatch & underemployment 8.25% graduates in matching jobs
    GS Paper III Economy Sectoral imbalance Manufacturing bias despite low share in jobs
    GS Paper II Governance Policy design flaws Employer-centric incentives

    Practice Mains Question

    1. Critically evaluate the Employment Linked Incentive (ELI) Scheme in the context of India’s structural labour market challenges. Suggest policy measures to ensure equitable and sustainable employment growth. (250 words)

    PYQ Linkage:

    [UPSC 2014] “While we flaunt India’s demographic dividend, we ignore the dropping rates of employability.” What are we missing while doing so? Where will the jobs that India desperately needs come from? Explain.

    Linkage: Address the role of skilling in tackling unemployment, evaluate gaps in current initiatives, and connect with how ELI Scheme mirrors or misses these elements. The PMKVY question emphasises the necessity of industry-relevant skills for employment generation. The ELI Scheme, while aiming at job creation, lacks a robust skilling component, risking the same shortcomings seen in earlier programmes like PMKVY.