End of Old Tax Regime would depend on the acceptability of new regime among taxpayers: CBDT Chairman Ravi Agrawal

While the New Tax Regime has been made more attractive, there is a feeling in some sections that the additional tax savings are not substantial.

This is all a relative concept. The counter question would be: What would be an adequate amount? Rs 20,000, Rs 25,000, or Rs 30,000, or Rs 40,000? We have to give benefits to taxpayers but at the same time, we have to garner revenues for welfare schemes…Funding has to be there and sources are the same. There has to be a trade-off.

The New Tax Regime has been sweetened further. Is the Old Tax Regime going to be discontinued, if not immediately then down the road?

That only time will tell because it would depend on the acceptability of the New Tax Regime. From the data that we have, two-thirds of the people are finding value in it and are opting for the New Tax Regime. That is an encouraging sign. Let us see how we end this financial year…Depending on that we will see what call has to be taken as regards the Old Tax Regime.

The next full Budget would be upon us in a few months. Can we expect the further sweetening of the New Tax Regime?

Let us live in the present. We have already given substantial benefits. We will see how things shape up. For more liquidity in the hands of the salaried class, other than the new (income tax) regime, we have said that if TDS (tax deducted at source) has been deducted from other activities, credit would be given. Similarly, for business also, TDS has been reduced because the liquidity was getting blocked for one year…So, through other provisions, we are trying to add liquidity in the hands of the people.

What suddenly changed the government’s thinking on Angel Tax, given that just last year there was a move to expand its ambit, which had led to a pushback from startups and their investors?

That (negatively impacting investments in startups) was never the intention of the government. We need to understand that we also have to ensure that funds through other than acceptable means do not flow. For startups, sufficient and reasonable relaxations were there in consultation with DPIIT (Department for Promotion of Industry and Internal Trade). But still, people felt that this provision was coming in the way of bringing in more investments from outside, which was never the intention. So, the thought was that if more investment can come by doing away with this (Angel Tax), then it is better to do so. If going forward, funds come through some undesirable means, then there are provisions which would take care of it.

A move that frayed a lot of nerves is the set of changes in the long-term capital gains (LTCG) tax. The CBDT and the government have been issuing clarifications. Do you now feel that at the outset, the message and intent could not be communicated clearly?

The Budget was announced just the day before (Tuesday)…within a few hours the press conference took place and after that there were clarifications also. It was never the case that the CBDT or the government was hesitant in sharing details and clarifications. But technology today is so fast with instant feedback and response…People need time to actually absorb these details, and as and when issues are flagged, they are clarified. We were never shy or hesitant in giving any clarification…Also, unless those concerns are raised, the clarifications also cannot be given. We cannot say that the strategy could have been different.

What was the rationale of this cut-off date of 2001 with regard to the indexation benefit under the new LTCG tax regime?

Grandfathering till 2001 was already there for properties purchased earlier than that. Then also, the idea was how to make it simple…2001 was taken as the base at that time and we have kept the same now to provide a comfort level…The fair market value as of 2001 was subject to indexation in the earlier regime, and the same logic is there now also.

With 2001 as the base, in the last 23-24 years, cost indexation is about 3.5 times, which means that capital gains would be higher in the new (LTCG) regime. However, capital gains tax would be lower because the rate has gone down from 20 per cent to 12.5 per cent…property rates have risen beyond a threshold where this new regime is beneficial. There could be some instances where the old indexation-based regime would be beneficial, but those would be a minority.

Even if capital gains are high, the rollover option is there and you can invest in a new property to completely absorb the capital gains.

Was the move also made with a view to deter investors crowding the residential real estate market vis-à-vis actual end users?

No, that was not a factor. But in any case, if someone is investing only for the purpose of investing, he is buying only to earn returns on property. In that case, if the person is required to pay something extra on the profits that he has earned, then that is okay. The person ought to pay.

Similarly, in the case of shares also, where the holding period is one year, if the gain is up to about three times, the new (LTCG) regime is beneficial if the investment of say Rs 1 lakh is made because we have increased the exemption limit from Rs 1 lakh to 1.25 lakhs. Now if it is beyond that, and the person is actually getting a gain of more than three times, he might as well pay some component as tax.

The hike in STCG (short-term capital gains) tax and STT (securities transaction tax), particularly on the futures & options (F&O) segment, what was the intent? Was it just simplification or also to dissuade or deter retail investors from certain market segments that are seen as risky?

It is a mix of both…The basic intent is that in the F&O segment, the transactions are exponentially rising. In March 2019, around Rs 250 lakh crore of value was being transacted, which has risen to Rs 8,000-odd lakh crore. All categories of taxpayers are participating, including the middle class, and quite a large chunk are incurring losses…So yes, that element was there in the thought process. But at the same time, there is a case for getting more revenue also from that area of activity…We expect additional revenue of around Rs 17,000 crore from changes in capital gains tax (LTCG as well as STCG), and extra revenue from STT would be somewhere around Rs 7,000 crore.

Talking about the Vivad se Vishwas 2.0 scheme, what types of tax disputes are you targetting? Will it also include disputes related to the so-called Angel Tax?

Except for search cases, the scheme is for all types of tax disputes…there is no distinction.

What exactly does the planned comprehensive review of the Income Tax Act entail? Is it linked to the Direct Tax Code or is it independent of that?

It is independent of the earlier exercise (Direct Tax Code), but those documents are also available. So, we will study those also for this review…We will take inspiration and inputs from that…The review essentially is to simplify the provisions and to cut redundancies that crept in over a period of time, which have made it bulky. Psychologically also, it becomes difficult for a person, especially a common taxpayer, to navigate through the Act.

It is not essentially rewriting it altogether but a question of simplification. How do we simplify the processes and procedures? Can we make it more aligned towards technology? These are the basic contours that we will examine.