- 7/19/2024
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00:00Hello and welcome. You are watching NDTV Profit. I am Harsh Saita and you know we continue
00:14our pre-budget series to try and break down tax law for you. Of course, expectations to
00:21try and simplify tax regime have been on since the last 10 years of the NDA government as
00:28well as the BJP government and therefore what more can the government do likely in this
00:35budget to kickstart their third term and Modi 3.0 will be on the radar and you know to join
00:42us and give us perspective on this conversation, I have with me Mr. Puneet Shah who is a partner
00:47with Dhruva Advisors to try and break this down further. First off, welcome to NDTV Profit
00:54and thanks for being with us live. Sir, I just first off want to try and break down old regime
01:00versus new regime, right? Do you believe that that can continue to co-exist in Modi 3.0 and
01:08when do you believe would be the right time to phase out the old regime if at all? I think the
01:15new regime was introduced a few years back, maybe around 3-4 years back. We are still coming to
01:22grips with the entire situation. The way they have made it is the new regime is a default regime.
01:28So, today every individual gets into new regime by default unless you opt for the old regime,
01:35right? People are used to old regime, people are used to deductions. The new regime is without
01:40any deductions and there are very significant deductions such as HRA, LTA, Section 80C,
01:4680D deductions, etc. So, people are still coming to grips with the situation that I
01:51would opt for the new regime without any deduction and they are still looking at the pros and cons,
01:57they are still looking at the cost and benefit analysis and then they would decide whether
02:01they would want to be in the new regime or not. It also depends on at what stage of income slab
02:09you are on, right? At particular point of time it may make sense for you to opt for the new regime
02:14at some point of time. With all the deductions it may make sense for you to continue with the
02:19old regime. So, to my mind, I think it will continue for few more years. I think the government
02:26is looking at the number of people who are opting for the new regime, those who are opting for the
02:32old regime and I think they will take a call in due course to see whether they want to scrap
02:38old regime at all. My view, I don't think it is prudent to do that because it would discourage
02:46some of the important investment linked incentives such as provident fund, insurance etc. So,
02:54to my mind it would co-exist. It does co-exist and as consultants we have not seen any significant
03:01issues around this. I mean there is not much confusion between both the regions.
03:07Right, but therefore does this not add to the complexity of an already very complex tax structure?
03:14Absolutely. When it came we were all struggling as to what do we advise our clients. There is
03:20already one regime, plethora of deductions, exemptions etc. Now this claims to be a simpler
03:28regime, less deductions, less exemptions, lesser tax rate and therefore more benefit etc. But yes,
03:36it does add to the complexity. In fact, if you look at, one is the people who are at a slab rate
03:45of 3 lakhs, 4 lakhs, 5 lakhs, 7 lakhs etc. where it makes some difference, 1 lakh odd of taxes.
03:53But if you go to a much higher level, say HNI's or ultra HNI's and go to a income level of say
04:0210 crores, there could be a difference of 40 lakh rupees there mainly because of surcharge difference.
04:09Right, the surcharge is same for several levels up to 1 crore, 2 crore or 5 crore but above 5 crore
04:16the surcharge is 37% for the old regime and 25% only for the new regime.
04:22It can make tremendous difference if you are at a much higher level, say like 5 crore plus or it makes some difference
04:30if you are at much lower level which is like a couple of lakhs in that sense. So, yeah, that's how it works.
04:38Sure, and therefore the real question would lie somewhere between 10 to 20 lakhs where a large
04:46bulk of our viewers may find it relevant as well as a large bulk of India also resides
04:52because clearly the conflict does not lie in the 5 crore plus to opt for the new versus the old.
05:00The conflict lies in the sub 20 lakh bracket and above the 7 or 8 lakh bracket.
05:07And therefore if one were to opt for HRA as well as some of the basic deductions,
05:14should one opt therefore for the old tax regime? Is that what you are hinting towards?
05:21It would also depend on the quantum of the allowances or deductions which you are claiming.
05:27So, as I articulated you have HRA, you have LTA, you have section 80C, 80D, 80G.
05:37You have interest on house property, borrowings for house property which is 2 lakhs.
05:42Even that is not allowed under new regime, right? So, to my mind it would
05:46depend on the individual circumstances of people as to what kind of deductions they are claiming,
05:53what kind of rent they are paying, what kind of interest they are paying and accordingly
05:58they are well advised to do their calculation and see whether it makes sense for them for the old regime or new regime.
06:06There is a strange rule where if you have income from business, individual income from business,
06:15then you can opt for old regime only once. So, default regime is new.
06:21You can withdraw from the new regime, go to old regime but you can do it only once.
06:26So, that's a very strange rule. You can't go back to new regime. But for individuals who do not have business income,
06:33they can opt for old or new regime every year in that sense. So, that's a good flexibility which has been given.
06:39So, maybe individuals would actually do calculations every year, look at their
06:45situations and then opt for either old or new regime.
06:48As I said, difference is not very large at that level. Somewhere it is below 1 lakh in terms of tax impact.
06:56So, if your deductions are more than 2 odd lakhs or 3 lakhs odd, then I am sure it will make sense for you to go for old regime.
07:06Because the tax impact is let's say 20% of 4 lakhs, you know, whatever that number is,
07:13say 40, 30, 40 thousand whatever, that would bridge that gap between old regime and new regime.
07:19So, higher the deduction, it would make sense for you to go for the old regime or else you opt for the new regime.
07:27Sure. So, my key takeaway from this for viewer simplicity would be that if you have an income between 8 to 20 lakhs
07:38and you would have deductions between the 2 to 3 lakh kind of range or greater,
07:43then you ought to start looking very actively at the old regime and it's something you will have to opt for
07:49because the default regime is now the new regime. If you don't opt for the old regime,
07:54you will automatically fall under the new regime. But what I really want to deal with is the first part of your answer, sir.
08:00Was with regard to PGBP, which is for simplicity business income, where you would,
08:08where as a taxpayer, you would be earning business income. What then?
08:15So, once you opt for the old regime, you have to stick with the old regime across assessment years or across financial years.
08:22That's correct. And you can only opt for the new regime once. Thereafter, you cannot go back to the old regime.
08:27That's correct. So, can you break that down for us? Can you?
08:31Yeah, yeah. So, that's exactly, the law is exactly what you mentioned is and it's a bit strange. I am sure there is some logic behind it.
08:39But that's how the law is. You can opt out of the new regime and go to old regime only once.
08:45Then you can't go back to the new regime. The withdrawal is permitted only once if you have business income.
08:52I am sure legislature in its wisdom has decided this law. But it permits lot of flexibility to a person who does not have
09:01business income and therefore, you could decide every year in terms of whether you want to be in old regime or new regime.
09:07That's how, that's how it works. –Understood. And sir, for those who are opting for this shift from new to old,
09:15new being the default now, of course, there are various factors but would you, have you encountered or have you thought of a situation
09:24where it would actually be detrimental to someone who is opting for the new regime
09:32and he would prefer holding back to the old regime just because in one particular financial year there is a one-off
09:40because this is such a unique case where you can't go back and forth between old and new.
09:45Yes, it could be detrimental for sure. So, you have to make that decision very wisely,
09:52especially for the business income earning individuals because you can't go back, clearly.
09:59So, yeah, it can prove to be quite detrimental. So, you need to take a long term view in terms of all your deductions.
10:05Again, some of these deductions like HRA or LTA or even the ATC or ATD kind of deductions are,
10:15typically you can take a long term view. It's not every, it's not every year deduction.
10:20You would have a policy, you have a PF, you have a housing loan which could run for 10 to 15 years, right.
10:28So, you can take such a long term view and then decide which regime to go for.
10:33I just want to add one more thing. There seems to be lot of noise around increasing some of these deductions.
10:41Clearly, I think you should, we should talk about it. Some of these deductions are, the numbers are fixed 5 years ago, right.
10:50So, standard deduction for example, which is possible in both the regimes.
10:54Interest on housing loan, again for 5 years, 2 lakh rupees.
10:58ATC deduction, 1.5 lakhs, again 5 years back. So, there is, seems to be lot of demand to increase some of these deductions.
11:08I am sure, considering inflation, etc. I am sure there will be some movement towards that.
11:16There is a demand for increasing slab rate as well. Today it is like up to 2.5 lakhs no tax
11:22in the old regime, up to 3 lakhs no tax in the new regime.
11:26Clearly, there is a demand to increase it to 5 lakhs, right, and no tax up to that.
11:33Anyway, you have that rebate under Section 87A up to 5 lakhs and up to 7 lakhs in respective regimes.
11:40But maybe they can consider increasing the slabs to 5 and 7 lakhs and do away with rebate.
11:47So, those are some of the demands. Let's see what comes.
11:51Yeah, so those are excellent views, sir, because that will simplify the structure as well
11:56and it will give in to the demand as well. But what are the other populist measures?
12:01Because, you know, one of the big expectations post at least the Modi 3.0 election
12:11was that there will be a slew of populist measures which will come through.
12:16And likely this is the first big event post the elections. So, in your view, of course,
12:21two things which you have covered very well. One is with regard to some of the reductions,
12:25the limits with regard to say ATC 1,50,000 as well as the slab rates.
12:31But what are the other big populist measures in your view from an individual taxation perspective
12:36that the government could consider?
12:38So, two we discussed. One is the slab rates. Clearly, I can see that there could be some progress there.
12:45Deductions, clearly, I am hopeful standard deduction or whatever could go up.
12:52Two more things I can think of. One is the surcharge we spoke about.
12:5737% surcharge is huge. It's a killer. It used to be 25%, it has become 37%.
13:05We have seen cases where individuals are now looking at actively trying to avoid taxes
13:13only because surcharge is so high, H&Is, 37%. And it's no longer tax planning.
13:20You are getting into the realm of tax avoidance, whatever.
13:23So, I think government should relook at 37% surcharge. It's too high to my mind.
13:30Maybe there is a case to reduce from 37% to 25% surcharge.
13:34So, that's one I can think of. But that's for H&Is and ultra H&Is.
13:38Second, there is lot of discussions around inheritance tax and wealth tax being reintroduced.
13:46Or rather inheritance tax is nothing but estate duty. Wealth tax used to be there years back.
13:52I can see lot of discussions in the press and media etc. to see whether there is super rich tax reintroduced,
14:01inequality, proper distribution of wealth, income etc. So, there seems to be some movement,
14:10discussion at least around reintroduction of some of those measures.
14:14Not sure whether it will actually happen or not. I think every government has their manifesto
14:22where they pronounced or announced whether they are backing some of these measures at all.
14:27But these two are interesting space to watch out for.
14:32And do you believe that those will be introduced?
14:35I am not sure. We talked about populist measure. Now, something which is populist for one class of individuals
14:45may not be populist for another class of individuals. So, it's a divide between super rich and middle class or lower middle class.
14:53So, I feel it's too early for the government to introduce some of those measures.
14:58Okay, too early it seems and fairly so because some of the assets within the wealth tax regime
15:07are not just owned by the super rich. They will be owned by the middle class as well.
15:12That's true.
15:14And even some of the inheritance tax proposals if at all that were to materialize of course
15:21will also be applicable to some of the middle class.
15:24The way it works is that typically those taxes are levied only beyond a particular limit
15:31which is like 1 crore, 5 crores whatever. So, hopefully should not impact middle class or lower middle class individuals.
15:40Sure, excellent. So, any last thoughts with regard to ironing out some of these
15:46and simplifying tax regime from an overall standpoint just to kind of cover all bases.
15:55Anything in your mind that the government must do in this budget to kind of simplify the tax structure for individuals?
16:01Okay, we talked about new regime, old regime, we talked about deductions, exemptions,
16:08we talked about slabs etc. So, there is some scope there which can be done clearly
16:14but that's more liberalization or rather simplification.
16:20But one area I can think of is the flow of information between the individuals and the tax office
16:30in the form of specified financial transactions where companies have to report some of the transactions
16:39to the tax office, then tax office fills it up and puts it on the portal for the individuals form 26 AS etc.
16:48The details of TDS, details of advance tax etc. and details of capital gains, interest, dividend.
16:55Now you have annual information statement also.
16:59There I can see lot of scope for improvement and simplification, availability of information on a timely basis
17:07in the form of 26 AS, there is lot of scope for reconciliation, you give feedback, department corrects it etc.
17:14So, timely updation of those documents for the individuals to file their returns in a timely basis
17:21is something which tax office can, revenue authorities can actively look at.
17:26Sure. Ok. So, thank you so much. It's been a great interaction.
17:31You know, plenty of takeaways and coincidentally we also have Sensex at record highs as we speak.
17:39So, I am going to try and quickly cover that. So, we have Sensex which has hit a record high.
17:44Let's quickly pull up if we can the Nifty constituents as well as just in terms of which ones are contributing the most.
17:53Oh, there you go. We are seeing a bit of a spike there on the Sensex index at least.
17:583 fifths of a percent higher. You have SBI, L&T on the bottom of your screen.
18:03You can see some of those but HDFC Bank is the key one there.
18:0660 points to the Nifty and likely a very similar or proportionately similar number on the Sensex which is essentially what's driving.
18:15But look at private sector banks because those ones are the ones which are driving markets today along with Larsen and Toubro.
18:22And essentially even the Nifty just about 13 points away from life high.
18:27So, it's a good time to be in markets. You know, markets continue to hit life highs, positives there.
18:35But it's been a great interaction with Mr. Puneet Shah and to try and break down individual taxation with him.
18:42Thank you so much, sir. With that we will slip into a very short break.
18:46More on the other side. Stay tuned to NDTV Profit.
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