No one expected the last
(albeit interim) Budget of the current government to be a humdrum affair. And
although there were no path-breaking announcements, there were some changes in
the tax regime that could be quite far reaching in their own right.
These included tax relief in the form of rebate
for individuals with income of up to Rs 5 lakh, an exemption for notional rent
from a second self-occupied property, extending the rollover benefit on capital
gains of up to Rs 2 crore from one to two residential homes and benefits
for the real-estate sector. While these changes and their impact have been
discussed extensively over the last few days, it is perhaps also important to
see what these changes signify, from a larger perspective of how our tax system
is likely to evolve in the coming years. There are four key takeaways from this
perspective: First, this Budget shows the government’s focus on expanding, and
maintaining its tax base. The finance minister spoke of how the number of returns filed has grown from
3.79 crore to 6.85 crore in the past few years. While this is impressive, there
is no denying that we still have a long way to go. If the exemption for those
earning up to Rs 5 lakh had been effected through a change in slab rates, it
could have resulted in a fall in the numbers of taxpayers required to file
income tax returns, which would have negated the gains of the past few years.
Perhaps, in recognition of this, the relief was structured as a rebate, which
would mean that return filing obligations remain intact. With increasing use of
technology, one may further expect the returns filing processes to be
simplified and streamlined, so as to minimise the compliance burden on
taxpayers with nil or low tax dues.
The Budget also seems to recognise some key
societal changes in the way Indians live and work today and seeks to reorient
the tax regime accordingly.
For instance, the exemption for notional rent on
a second self occupied house reflects the increase in internal migrations, and
the need for many individuals to maintain second homes to support parents or
children staying elsewhere. Permitting a taxpayer to roll over gains on sale of
a house by investing in two houses is also an outcome of this
recognition.
The only sector that saw substantive changes in
the Finance Bill was real estate. There was an extension of the tax holiday for
affordable housing projects, and a modification of provisions relating to
taxing notional rent on unsold inventory.
The latter provision will now apply only to
properties which are unsold beyond two years from the project completion date.
This again reflects the importance that is attached to this sector. Lastly,
the Budget reflects the importance of technology, both in expanding the tax
base as well as improving the overall taxpayer experience.
And although one waits to see how the process of
return scrutiny by an anonymised back office will work in practice, the planned
processing of returns and issue of refunds within 24 hours will truly be a game
changing development. With a full-fledged Budget after the elections less
than six months away, it may also help to take a quick stock of what is in
store in the days ahead. The new Direct Taxes Code is on the anvil, and
although this will likely be taken up only after the elections, public
consultations and debate may begin soon.
Taxpayers will also be watching the next budget
closely to see if there are rate cuts for companies and firms, a
rationalisation of MAT and DDT regimes, and changes (and possibly a repeal) of
the angel tax provisions.
Until then, of course, all eyes will be on the
political arena.
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