FM Nirmala Sitharaman has said the new tax regime will be the default option. What does that imply?
It means that in case you do not choose (a tax scheme) specifically, this (new regime) will be the default scheme. If you consciously want to make a choice, you have the option to opt out of the new regime. Previously, the default option was the old tax regime with exemptions.
The Centre has introduced standard deduction in the new regime. Is it not going back to the old system?
Certainly not. I don’t understand why the standard reduction is being equated to an exemption. It is not an exemption. The intent is not to tax the total revenue. In the case of a salaried employee, he is getting a salary which is his gross income, not net income, he has to incur some expenses – travelling, office equipment… especially now in Covid times. We cannot ask him to give us an account of the expenses. So, there is a presumptive expenditure of ₹50,000 that has been allowed in lieu of the expenditure.
Some experts argue the new regime will have some impact on personal savings. Will it discourage savings?
Those who are saving for tax purposes, I think that proportion is reducing. The new generation is now looking at different options for investments and savings, (which are) not necessarily linked to these tax-saving instruments. There may be some concerns, but overall we feel that taxation should not be the instrument to promote savings. There are other ways to do that.
Insurance sector has expressed concerns that the tax measures will hamper insurance penetration, which is already low in the country…
This will not discourage insurance, but it will certainly discourage investment in the garb of insurance. High net-worth individuals were using this instrument for investments, not primarily for insurance (but for) getting tax exemptions. We want to tax everyone on their returns from investments. This is largely to plug a loophole.
Considering that very few people opted for the new regime this year, what was the basis of calculation of the revenue forgone as ₹37,000 crore?
This is done with respect to the old scheme. We have done our calculations based on the deductions that they are claiming in the old scheme (and) the benefit that will accrue to them in case they shift to the new scheme.
With the changes to the new regime, how confident are you about its adoption since very few took it up?
Very confident. Taxpayers’ response (to the new scheme) was poor and that is why we have made it more attractive. We are confident that at least 50% of taxpayers should shift (to the new regime). And I am being conservative here.A number of customs exemptions were removed last year, but this year many have been extended. What was the rationale behind this?
We have not been able to complete the review of some of the exemptions. About 150 exemptions have been extended, 75 for five years after review, and seven for two years. Similarly, six have been reviewed and extended for one year. About 40 have not been reviewed but extended.
Startups have expressed concerns on the widening of angel tax provision. What is the thinking behind it?
That was a loophole. We are only equating non-residents to residents. If the residents invest into a startup at a higher value than its fair value, they get taxed… This has been extended from residents to non-residents for equity.
The Economic Survey talked about ‘reverse flipping’ and the need for policy changes to facilitate it. Is the government willing to consider this?
We would love to study this in great detail. I read that there are some companies that want to shift base (to India). So, what kind of benefits they are looking at? We will be willing to look at it. That needs a deeper examination.
Many economists have said revenue assumptions are on the higher side considering there would be some impact of slowdown in global economy…
We have tried to give a realistic estimate. It is neither pessimistic nor optimistic. We have kept a tax buoyancy of one. If the nominal GDP were to grow 10.5% then this (revenue) will also grow 10.5%.