New Delhi: Days after the Union Budget, the union government’s Revenue Secretary Sanjay Malhotra sat down for an extensive interaction with DH’s Gyanendra Keshri and Arup Roychoudhury. Speaking on the various tax announcements, Malhotra said that the government set out with an intent to streamline the capital gains taxation regime. He also said that the old personal income tax regime will soon be redundant, with 70% of taxpayers having already opted for the new regime.
Edited excerpts:
What was the government’s rationale behind the changes in long-term and short-term capital gains tax?
It is basically to make things simpler. There were too many rates, both for LTCG and STCG, along with different holding periods. So, the whole purpose basically is to simplify, and while doing so, reduce the tax arbitrage between the various asset classes. Keeping in mind of course, that all asset classes may not be similar and recognising that fact that special dispensation may be kept for real estate. That rollover benefit was retained for homes but not for other asset classes.
The third reason behind the changes is to reduce the disparity between taxes on capital gains and other income like salary. So, there is a small shrinkage to that effect. Why should income which is arising out of shares or out of real estate or out of a house, unless invested elsewhere, be taxed differently?
At 10.5% nominal GDP growth for FY25, you are projecting 11% net tax revenue growth. Are you being conservative?
My GST revenues for the first three months (April-June) are at 10%. Indirect taxes and corporate taxes are not growing at a high rate. Corporate profits are under pressure. A lot of personal income tax increases have been on better compliance. Improvements in collections forever. My tax buoyancy was 1.5 last fiscal year, leading to collections of Rs 35 lakh crore. Even if I do Rs 35 lakh crore this year, it is not on the same buoyancy. I have to grow the tax collections more than the GDP growth, again. Improvement in collection efficiency year-on-year, is a difficult prospect. It leads to an increase in revenue forever, but an increase in tax buoyancy only for that year.
To answer your question, our estimates are not conservative. This target was on a very high base. In 2022-23, my buoyancy was only 0.9, last year it was 1.5, for 2024-25, I have projected a central net tax buoyancy of 1.05. This is a very aggressive target, and not at all conservative.
In the Budget, the Finance Minister has talked about a comprehensive review of the Income Tax Act, 1961. What kinds of changes are expected in the income tax regulations?
It is likely to be concise and simpler for the taxpayers to understand. The new regulations will be easier to interpret and have a lesser compliance burden. For example, in the existing Act, just on TDS there are so many pages. There are several categories. Provision of exemptions runs on several pages. So the idea is to make it concise and more friendly for the taxpayer and also for chartered accountants and lawyers.
Do you think the increase in securities transaction tax (STT) on futures and options is aimed at discouraging non-serious players from the market?
Absolutely right. Partly this is the reason. But will it be sufficient? The answer is no. For example, higher taxes on some products like tobacco and alcohol are not sufficient to deter people from using them. Nevertheless, they are there to discourage people.
When is the next GST council meeting expected, and what are your key expectations?
It will happen after the current parliament session gets over. The session concludes on August 12. So it is likely in the second half of August. So far as GST rates are concerned, it is now in a consolidation phase. So we don’t expect major changes in rates.
What are the possibilities of bringing petroleum products under the GST?
The Centre has made its stand clear. We want petroleum products under the GST. However, the decision has to be taken by the council on a consensus basis. I think it can’t happen overnight. There are several products like ATF, diesel and petrol. You can start with some product like ATF and move gradually.
All the personal income tax related concessions have been announced only for the taxpayers opting for the new tax regime. What is the strategy for the old tax system? Do you think it will gradually become redundant?
Yes, I think so. If the new tax system becomes more attractive, people will move to the new system. This is already happening. More than 70% of taxpayers have moved to the new tax regime. But there is no sunset date.
Do you have any breakup on tax revenue collections from the old and the new tax system? A substantial number of people who file returns, pay zero or nominal tax. Are the people who actually pay taxes moving to the new system?
We don’t have any breakup on that. While less than 30% of people are now opting for the old tax regime, their contribution in tax revenue could be 50% or even higher, but we don’t know. But the point is the old tax system still remains attractive for some people, especially those who have taken housing loans.