India’s tax system might soon undergo a major change, according to Sanjay Malhotra, Secretary of the Department of Revenue at the Ministry of Finance. In a recent discussion at the PHD House of Commerce and Industry, Malhotra suggested that India should move towards a single personal income tax regime rather than having two distinct systems.
Currently, taxpayers in India can choose between the old tax regime, which offers various deductions and exemptions but comes with higher tax rates, and the new tax regime, which features lower tax rates but fewer deductions. Malhotra highlighted that a significant 70% of taxpayers have already opted for the new regime, indicating a clear shift towards this simpler option.
“We are having two regimes under direct tax — new and old. We should be having one,” Malhotra remarked. He emphasized that consolidating the tax systems could streamline the process and reduce complexity for taxpayers.
Regarding the recent comprehensive review of the Income Tax Act announced in the Union Budget, Malhotra described it as a “mammoth task.” The Income Tax Act is a detailed document spanning 1,600 pages, and the review aims to simplify it by removing outdated provisions and exceptions.
Malhotra also touched upon changes in the long-term capital gains (LTCG) tax for real estate. The new budget has increased the LTCG tax rate to 12.5% from the previous effective rate of 11.54%. The budget also removed indexation benefits for LTCG on residential properties, which might increase the tax burden for property owners who have held their assets for a long time. This adjustment is intended to align the tax rates on real estate more closely with those on other assets, aiming for greater simplicity and fairness in the tax system.
In terms of tax revenues, Malhotra noted a significant increase, with tax revenues growing 40% faster than GDP. This surge is attributed to better tax compliance. The government’s goal is to promote “Viksit Bharat” (Developed India) by 2047, and simplifying the tax system with fewer disputes is a key part of this vision.
Malhotra concluded that the review and simplification of the Income Tax Act are crucial steps towards a more efficient and user-friendly tax system. The aim is to make the tax provisions more straightforward and reduce the complexity that currently exists.
