Taxpayers are looking forward to potential changes in the slab rates and higher deduction in old tax regime in budget 2024. However, Ranjeet Kumar Agarwal, president of the Institute of Chartered Accountants of India, is of the view that the old tax regime may be phased out gradually.
Agarwal is also against offering tax benefits to promote retirement savings but advocates for medical insurance to be a tax-deductible expense in the new exemption-free tax regime.
In an interview with Mint, Agarwal discussed strategies to increase the number of taxpayers in India. Edited excerpts:
The default (new) regime, which offers concessional tax rates on total income, without deductions and exemptions, will make both tax compliance and tax administration simple. It will also ensure consistency and certainty. The default tax regime is the way forward and the old scheme may be discontinued in a phased manner.
Examples include not reporting or under-reporting income auto populated in Form 26AS/AIS and a mismatch of income in the income tax return and taxable income statement.
Also read | Budget 2024: Know the real tax on your income
The holding period is more than 36 months for an investment to be treated as a long-term capital asset and be eligible for indexation benefit and concessional rate of tax under Section 112.
However, to give sector-specific benefits, the holding period for being treated as a long-term capital asset has been reduced for certain assets. For example, to promote the real-estate sector and make it more attractive for investment, the period of holding for land and building was reduced to 24 months. It was reduced to 12 months to incentivise investment in listed securities and units of an equity-oriented fund. In this case, even though indexation benefit is not available, taxpayers are entitled to a concessional rate of tax at 10% on the capital gains exceeding ₹1 lakh.
Investment for retirement is essential for every person and it should not depend on the availability of tax benefits. Since the tax regime has provided incentives for investment and insurance all these years, there is a tendency to consider the current tax benefits while deciding whether to invest. With the default tax regime offering concessional rates without deductions for investments and insurance, there will be a gradual change in people’s mindset – investing for future benefits rather than tax concessions.
However, considering the importance of medical insurance to individuals and the high cost in the absence of subsidised healthcare facilities to all taxpayers, ICAI has suggested that medical premiums be allowed as a deduction under the default tax regime as well.
Increasing social benefits for taxpayers would increase voluntary tax compliance. Currently, filing tax returns has been made mandatory for certain people even if their income is below the basic exemption limit. These include people who deposit more than ₹1 crore in one or more current accounts, spend more than ₹2 lakh on foreign travel or more than ₹1 lakh on electricity, have an aggregate tax deducted at source (TDS) and tax credited at source (TCS) of ₹25,000 or more, a total business turnover of more than ₹60 lakh, or gross receipts of more than ₹10 lakh from a profession.
As a way forward, more such criteria may be specified. For example, people who buy immovable property exceeding, say, ₹30 lakh could be required to file returns irrespective of whether their total income is below the basic exemption limit. Also, the thresholds for existing criteria could be reduced.
Making it easier to file returns would also help increase the taxpayer base. Earlier, many individuals didn’t file returns even though they had taxable income as they found it difficult to gather information about their different sources of income. Because of this, the forms are now pre-filled. The consolidation of scattered tax-related information into a single, easily accessible location has played a pivotal role in encouraging more individuals to voluntarily file returns.
Taxpayers prepare their returns on the basis of bank statements, interest certificates, investment proof for which a deduction is available, books of accounts, balance sheets and profit and loss accounts (if applicable), Form 16/16A and AIS. They do not and should not depend on AIS alone.
Earlier this month, we launched ChatGPT to simplify the CA preparation process. It stores question banks of the past 75 years to help students easily find specific questions and their recurrence over the years. We conduct campus placement drives for newly qualified CAs twice a year. The next one is expected in August. The most recent one, in November 2023, offered 2,717 jobs at 140 participating organisations. The average domestic salary came in at ₹13.24 lakh a year and the highest was ₹29 lakh a year.
