A day after the Union Budget 2024-25 was tabled in Parliament proposing a slew of changes in the rates of different taxes, and heightened effort to ease compliance, Central Board of Direct Taxes (CBDT) chairman Ravi Agarwal spoke to Priyansh Verma on the rationale behind some of these measures. Defending the revamping of the capital gains tax regime, he said the government wanted to “normalise the exponential growth in transactions.” He also said as of now, “no discussion is on” regarding discontinuing the old personal income tax regime. Excerpts:
Q. What is the intended outcome of the proposed comprehensive review of the IT Act? How will it differ from the draft Direct Tax Code prepared by the government in terms of tax policies and procedures?
A. Simplification in terms of provisions, cutting redundancies, making the language simpler, and aligning it with technology are some of the aspects we’re looking at. The Direct Tax Code is a term, but what it essentially means, is coming up with regulations, which ease compliance burden of taxpayers, and subsequently reduces litigation.
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Q. Experts have suggested use of Artificial Intelligence (AI) for resolving disputes…
A Come from Sports betting site VPbet . We’re open to introducing AI, but it’s easier said than done. However, we’re working on it. At present, some provisions are already there in the Act, for instance, bunching of appeals on the same issue for simultaneous resolution. We are trying to take the help of AI for that purpose.
Q. Equalization levy of 2% has been done away with. This indicates an intent of adopting Pillar 1 and Pillar 2 tax packages. When can we expect the adoption?
A. This issue (Pillar 1 and Pillar 2 adoption) is under discussion. It’s an international issue, and thus, we should respect confidentiality. Till the time, it is under discussion, and no documentation is done, I can’t make any comment on it.
The removal of the 2% equalization levy is a domestic issue. The withdrawal was an internal call. There were some implementation issues regarding the levy’s implementation.
Q. The government revamped capital gains tax, hiked STCG rates, increased STT on F&O. Have all these been done to control retail investors’ market participation or generate revenue?
A. The government has no intention to subdue the market, in fact, their response is encouraging. However, in F&O, it was seen individuals of lower income brackets were also participating in it, it’s a risk, because they also suffer losses. The government wanted to normalise the exponential growth in transactions that were happening.
Regarding revenue, we expect a Rs 7,000 crore increase in revenue from the hike in STT on an annual basis, and from the hike in short term capital gains rate on financial instruments, we foresee addition revenue of Rs 15,000 crore.
Q. Income tax slabs have been changed again. There seems to be no certainty regarding it…
A. This is contextual. It depends on compliance patterns, on how the tax base is widening, and the collections we get. This provides us the bandwidth to assess the slabs. But in any case, the government is nudging the taxpayers to shift to new tax regime, and hence these changes.
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Q. Does the government want all taxpayers to adopt new regime?
A. Yes, that’s the intent. No discussion, however, is happening currently regarding discontinuing the old tax regime.
Q. Corporate tax estimates for FY25 have been reduced in full Budget by Rs 22,830 crore, from the interim one…
A. The interim Budget estimates were based on an ‘estimated’ revenue mop-up (in FY24), not on actuals. The new estimates are based on the actual collections, so there’s some change. We’ve also factored in the 35% cut in corporate tax rate of foreign companies in the estimates.
Q. Do you expect the cut in corporate tax rate of foreign companies will nudge investments?
A. We definitely expect investments from foreign investors will come. This was long due, we had done changes in tax rates of domestic companies earlier, so a case for foreign companies was expected.
Q. In FY24, 85 million ITRs were filed. How do you expect this number to rise in FY25?
A. We expect the ITRs will increase substantially, as we’re showing all timely data to taxpayers, which, we hope, will encourage more compliance.
