No further changes are expected to the capital gains tax regime in the short to medium term as the government is committed to delivering tax certainty, and the proposed review of the Income Tax Act of 1961 will reduce the tax compliance burden for people by simplifying the law, rather than reduce their tax outgoes, Revenue Secretary told Sanjay Malhotra said in an interview.

About 70% of personal income tax payers have switched to the new tax regime without exemptions, as per available data for last year, following the reduction of rates for those earning up to ₹15 lakh, Mr. Malhotra noted.

“Last year itself, we gave a number of benefits which made the new tax regime attractive with the 30% rate kicking in at incomes beyond ₹15 lakh. In the old tax regime, it kicks in at ₹10 lakh,” Mr. Malhotra said. “Before that, hardly anyone was in the new tax regime and now most have shifted, as the ₹10 lakh threshold under the old tax regime effectively became ₹15 lakh,” he noted.

On the Income Tax Act review, he said the idea is to make it easy for tax practitioners, authorities, the courts and tribunals to read and implement the law. “Some sections have multiple provisos, some have multiple exemptions, some provisions are spread over various sections across pages. The TDS [tax deduction at source] provisions themselves run into 90 pages, and some provisions are redundant. We will have a relook at all of these and see how we can reduce the volume and simplify the language,” he explained.

Rent from house

The Budget has also sought to plug some loopholes and expand the tax net. For instance, it has been stipulated that income from a rented house cannot be treated as business income.

“Some are classifying this as income from property which meant they could claim expenses on account of depreciation. Now, they can’t claim it, because that is not really a business to our understanding, but a pure and simple income from property,” Mr. Malhotra said. The I-T department will also use its power to levy tax collection at source for luxury goods of over ₹10 lakh.

Customs review

A similar review of the Customs duties, proposed in this Budget, will seek to ensure there is adequate difference between the import duties on intermediate inputs, raw materials and final products. “We’ll see how many rates we end up with… I don’t want to give you any number, but we will try to reduce it as far as possible without actually causing any major disruption or change,” he said.

Asked if more free trade agreements would lead to lower customs revenues over the years owing to concessional duties offered to trade partners, Mr. Malhotra agreed.

“Yes. [But] Customs is not primarily a revenue mechanism in any case. They comprise less than 5% of our total tax revenue, at roughly ₹2 lakh crore out of ₹38 lakh crore; so it is not an area of concern,” he pointed out.

Vivaad Se Vishwas 2024

The fresh dispute resolution scheme for Income Tax cases is very similar to the last few iterations, but a major difference this time is that search cases have not been included, Mr. Malhotra said. There are more than six lakh cases pending in appeal with about ₹20 lakh crore at stake, he said.

“Other than that, all disputes are eligible and the rest of the contours are the same: you pay the tax for whatever appeals are pending on July 22, you get immunity from prosecution, various penalties and interest is waived, and the case is settled. You are required to withdraw that case if you make the payment of tax by December 31. Beyond that, till a date to be notified, the scheme will be kept open for some time for late filers who will have to pay 110% tax.

“Those who were eligible in the earlier scheme, but did not take the benefit, did not settle it earlier, and want to now settle, can also do so. Instead of 100%, they will have to pay 110%, and instead of 110% [for late filers], they will have to pay 120%,” the Revenue Secretary explained.