The government is not open to reviewing the long-term capital gains regime for sale of property, which has ignited a debate, Sanjay Malhotra, secretary, Department of Revenue said in an interview. “For most sellers, the new regime will result in reduced tax incidence. Only for some, it will lead to an increase, he told Priyansh Verma. The secretary also said reduction in TDS rates may be taken up as part of the scheduled re-drafting of the Income Tax Act. Excerpts:

Are you open to review the new capital gains tax rate of 12.5% without indexation for sale of property (earlier the applicable tax was 20% but with indexation benefit)?
There are concerns that this would increase the tax incidence and hit real-estate transactions and the construction sector.

The introduction of tax deducted at source (TDS) on income from central government securities and state bonds may not lead to a significant effect on retail participation, according to market participants.

The Union Budget proposed that starting October 1, 2024, investors may face a 10 per cent TDS on investments in central government securities and state development loans (SDLs).

“Last Budget, TDS on interest on securities was reintroduced.

Similarly, we see very less impact of investors shying away from investing in government securities and SDL due to 10 per cent TDS on interest,” he added.

In the Union Budget for the previous financial year, a 10 per cent TDS was announced on interest payments.

It was applied to listed bonds (debentures) starting April 1 2023.

A segment of the market believes that retail investors, who often schedule their cash inflows based on anticipated interest earnings, may encounter disturbances due to TDS deductions.

This could particularly affect those relying on steady interest payments for their sustenance or other financial obligations.

They said that those investors may shift to other instruments to avoid an extra layer of complexity.

The cost of acquisition of real estate properties purchased before 2001 will be the fair market value (FMV, not exceeding the stamp duty value) as of April 1, 2001, or the actual cost of the land or building for the purpose of calculation of long-term capital gains (LTCG) tax, the I-T department has said. The FY25 Budget has reduced LTCG tax on real estate to 12.5 per cent, from 20 per cent previously. However, the benefit of indexation was done away with for properties purchased after April 2001.
The indexation benefit allowed taxpayers to compute gains arising out of sale of capital assets after adjusting inflation.

For properties purchased before 2001, fair market valuation (not exceeding the stamp duty value) can be used as a base to determine the indexed price. The indexed price will then be reduced from the sale price for calculating LTCG that will be taxed at 20 per cent.

In a post on X, the I-T department said an issue has been raised as to what would be the cost of acquisition as on April 1, 2001, for properties purchased prior to 2001.

For properties (land or building or both) purchased prior to April 1, 2001, the cost of acquisition as on 1.4.2001 shall be the cost of acquisition of the asset to the assessee; or the fair market value (not exceeding the stamp duty value, wherever available) of such asset as on April 1, 2001.

The central board of direct taxes has become more focused on the taxpayer rather than enforcement, said Ravi Agrawal, CBDT chairman, at the Confederation of Indian Industry session on July 26.

“The flavour of the department has changed from being an enforcement department to a taxpayer-centric department," Agrawal noted, highlighting that the Union Budget was a step forward.

Agrawal also pointed to an increasing focus on digitalisation and resolution.

“Multiple litigations were not leading us anywhere, the procedures have been standardised. We have come up with Vivad se vishwas scheme, keeping in view that last VSVS was successful,” the CBDT chairman said at the CII session.

The chairman also noted that the new capital gains tax regime is expected to benefit in most cases.

Sanjay Kumar Agrawal, the CBIC chairman, extolled the benefits of a phased manufacturing programme for mobile phones.

“Phased manufacturing programme has borne fruit and we have a robust manufacturing of mobile phones. Time has come to reduce rate of duty to 20 percent to 15 percent, because they cannot remain high forever,” he said.

The capital gains sphere has become increasingly complex as a result of isolated amendments to the laws governing holding periods and taxation of different asset classes over the years. The finance minister has put forward several changes to the capital gains sphere in order to rationalize the taxation of capital gains. Following our conversation about real estate and equity products, we will now delve into the proposed changes in the taxation of debt and bullion products.

Historical background
For a very long time all mutual fund schemes were classified into two categories of Equity and Non-Equity schemes which included debt funds of all variations as well as bullion ETF/Saving Funds. The long term capital gains on the first category were taxed at a flat rate of 10% over the initial one lakh which was taxed at zero rate. Short term capital gains on such category were taxed at 15%. This has changed from this year and has been discussed in another article.

The income tax department has said that more than 4 crore income tax returns (ITR) have been filed up to 22 July, 2024, which is less than 45% of all income taxpayers in the country who have filed for assessment year 2024-25. According to the IT department, this is 8% more compared to returns filed in the same period last year.

The IT department announced a few key milestones crossed. As of 16 July 2024, the number of ITRs filed per day had crossed 15 lakh filings per day. It is expected to increase significantly over the next few days as nearly 50% of taxpayers are yet to file returns by 31 July, which is the last date for filing returns. After that, there will be a maximum penalty of Rs 5,000 levied for delay in filing taxes, and this has to be filed before 31 December.

Taxpayers in India, who are filing returns under the new tax regime (which is about 66% of taxpayers), got a few relaxations in the Union Budget 2024 that was presented on 23 July 2024.

The Revenue Secretary in the Ministry of Finance, Sanjay Malhotra while addressing ‘FICCI’s interactive session on Union Budget 2024-25’ said that the government is working towards a comprehensive review of the Direct Tax Code.

It will be prepared by the internal committee and then shared for stakeholder consultation within the next six months. “We will have a consultation process and how it will happen that we will decide. We would like to have a collaborative approach for implementation,” he added.

The Revenue Secretary further stated that the efforts of the government will continue to provide a hassle free, simple and collaborative approach towards implementation of taxes. Malhotra said, “Our approach towards taxation has always been and will continue to be in the mode of collaboration and not confrontation. The purpose of our proposals, both on the policy side as well as on the implementation side, are to collect taxes from wherever they are due but do it in a manner that gives respect, trust to the taxpayers and collect them in a smooth and hassle-free manner.”

India will not sign a global corporate tax deal focused on highly profitable multinational firms unless its concerns on dispute resolution and the treatment of withholding tax are addressed, a finance ministry official said on Thursday.
The so-called "Pillar 1" arrangement, part of a 2021 global two-part tax deal, aims to replace unilateral digital services taxes (DSTs) via a new mechanism to share taxing rights on multinational companies, such as US tech giants Alphabet's Google and Amazon.com and Apple.

India is "constructively engaging" with all the countries for the successful conclusion of "Pillar 1", and was hopeful the deal would be finalised soon, Revenue Secretary Sanjay Malhotra, one of the top finance ministry officials, said.

"However, it cannot be at the cost of our own interests."
US Treasury Secretary Janet Yellen in May accused India of refusing to engage on issues important to US interests, noting that negotiations were stuck.

An amendment in the Black Money Act will give taxpayers relief from penalty in case they fail to disclose overseas assets worth Rs 20 lakh, Central Board of Direct Taxes (CBDT) Chairman Ravi Agarwal said, adding that however the obligation to report the transanction is not done away with.

The Black Money Act amendments in Section 42 and 43 will be a part of the Finance Bill.

Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 aims to curb black money, or undisclosed foreign assets and income and imposes tax and penalty on such income. Currently under the Act, even if the taxpayers fail to disclose a foreign asset worth Rs 5 lakh, they have to pay a Rs 10 lakh penalty on it.

“At present if the taxpayer is holding any asset abroad, which is not declared in the income tax return then there is a penalty of Rs 10 lakh. An amendment in the Black Money Act is proposed that If the value of the overseas asset is up to Rs 20 lakh, and is not disclosed, there will be no penalty if it's a bonafide mistake on the part of the taxpayer,” Agarwal told Moneycontrol in an interview.

Corporate restructuring and reorganisations often involve transactions where assets such as shares of another company are transferred without consideration, typically regarded as 'gifts'. These transactions have historically enjoyed tax exemptions for the donating entity under section 47(iii) of the Income Tax Act, ToI reported. However, the recipient of the gift has been taxed under section 56(2)(x) of the Act. A new budget proposal seeks to limit these exemptions starting April 1, 2024, to only individuals and Hindu undivided families.

Currently, companies, firms, and trusts could give away assets without facing capital gains tax, considering these actions as gifts. However, the budget proposal changes this by specifying that the exemption under section 47(iii) will no longer apply to non-individual entities, such as companies and firms.

Deepak Joshi, an advocate at the Supreme Court, commented on the shift in the legal landscape.

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.

Q. Experts have suggested use of Artificial Intelligence (AI) for resolving disputes…

A. 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.

The 'Vivad se Vishwas' scheme announced in the Budget for settlement of pending direct tax appeals will be launched this year and its notification apart from relevant FAQs would be issued soon, CBDT chairman Ravi Agrawal said Wednesday.
Speaking to PTI during a post-Budget interview, the head of the direct taxes administration in the country said that a "substantial" number of income tax appeals are logged at the appellate stage in different forums and it is expected that a "reasonable" number of taxpayers will avail the new scheme.

The first 'Vivad se Vishwas' scheme for cases under the direct taxes or income tax category was brought out by the government in 2020 and, according to the CBDT chief, it was "quite successful" with about Rs 75,000 cr revenue being garnered and about a lakh taxpayers availing the scheme.

The Union Budget 2024 has proposed that there will only be two holding periods -- 12 months and 24 months -- for determining whether the capital gains are short-term or long-term, and tax rates have been rationalised and made uniform for majority of assets.

Further, the indexation benefit has been done away in Budget 2024, while raising the exemption limit of Rs 1 lakh for Long-term Capital Gains (LTCG) on these assets such as listed shares and mutual fund to Rs 1.25 lakh.

Short-term capital gains (STCG) tax has been increased to 20 percent, and LTCG tax is now 12.5 percent for specific assets. Additionally, the Securities Transaction Tax (STT) has been hiked from 0.1 percent to 0.2 percent for equity transactions.

Promoters and private equity investors who have sold their shares via the offer for sale route in IPOs face potential tax challenges as a result of a Budget clarification imposing capital gains tax on such sales.

The central government has actually plugged a key loophole in the capital gains tax rules. Many promoters and investors declared zero capital gains on the grounds that there was no explicit provision for calculation of capital gains in this specific scenario and hence. the sale of shares was exempt from taxes.

Now, the central government has plugged the loophole in the rules with retrospective effect from February 1, 2018, bringing the older deals under the ambit of the clarification.

“Historically, there existed a degree of uncertainty regarding the application of the rules to shares transferred under an OFS that were not listed at the time of transfer but were nonetheless subject to STT. To address this ambiguity, the Finance (No.2) Bill of 2024 proposes an amendment to extend the existing rules for cost of acquisition to include shares disposed of through an OFS during an Initial Public Offering (IPO) and provide for indexed cost of acquisition.”

“Have you filed your ITR yet?” – a common question this time of the year, as taxpayers gear up to file the income tax returns by the July 31 deadline. Yet the struggle is annual, and often left for the last moment.

According to the Income Tax department, only 4 crore returns were filed by July 22. It is not only the procrastination, but taxpayers also seem to be struggling with issues such as login failures, unresponsive pages, timeouts, and problems reflecting pre-filled data and uploading large files.

As per a survey by LocalCircles that received 38,000 responses from 311 districts, 49 per cent of taxpayers surveyed are yet to file their returns, while 29 per cent do not believe they would be able to meet the deadline.

Forty-three per cent of respondents came from Tier 1, 26 per cent from Tier 2 and 31 per cent from Tier 3 and 4 districts, the survey revealed.

Income Tax Return (ITR) filing on WhatsApp: Now income tax returns can be filed via WhatsApp, using the power of artificial intelligence (AI). ClearTax, India’s leading online tax-filing platform, has started this facility under which AI-driven service simplifies tax filing for blue-collar workers, especially drivers, delivery executives and home service providers.

Which ITR forms are supported by this service?
“The new solution harnesses the power of artificial intelligence to provide a seamless, chat-based experience directly through WhatsApp, making it accessible to a wide range of users,” according to a release by ClearTax. Currently supporting ITR 1 and ITR 4 forms, the service caters to the needs of most low-income taxpayers, it added.

The tax-filing portal is expecting millions of low-income Indians to benefit via a seamless, chat-based experience on WhatsApp and get TDS refunds.

Did you ever find yourself in a situation where you carefully selected and filled in the details in the income tax return (ITR) form but after submitting it you realised that some details were either missed to be reported or incorrectly stated? What are your options to rectify such mistakes? Prior to FY2022-23 (AY 2023-24), if you made such mistakes there was no way to change it - you had to verify the ITR which had incomplete or incorrect information and then file a revised ITR. However, now with the 'Discard ITR' option, you no longer need to follow the old process. You can discard (delete) the non-verified ITR even after filing it and file a fresh ITR.

What is a 'Discard ITR' option in the ITR e-filing portal?
'Discard ITR' is a functionality enabled by the Income Tax Department wherein you can discard (delete) the filled-up ITR form and start the process again. Imagine you type something in a draft email and then delete all the content before sending it to the intended recipient. You can write fresh content and send the email.

"Users can avail of this option only if the ITR status is 'Unverified'/ 'Pending for Verification'. There is no restriction on availing of this option multiple times. Precondition: 'ITR status' is 'Unverified'/'Pending for Verification', said the Income tax department on its website as of July 20, 2024.

In order to make the income tax systems work more reliably, the Central Board of Direct Taxes (CBDT) has awarded the Taxnet 2.0 project to Bharti Airtel. As per a press release by CBDT on July 19, 2024, this collaboration with Airtel is aimed at providing network connectivity, facility management services, and video conferencing solutions to the Income Tax Department.

Experts say that this project can make the e-filing ITR portal work faster, as currently it is plagued with various network-related glitches and issues.

"Recently many taxpayers faced issues while using the online facility for ITR filing as opening each page of the tab was taking substantial time. We can expect that in the next season of ITR, taxpayers may find the e-filing portal's interface to load at a faster speed," says Mihir Tanna, Associate Director-Direct tax, S.K Patodia & Associates LLP.

The Central Board of Direct Taxes (CBDT) has extended the tax relief for sovereign wealth funds (SWFs) and pension funds by a year to March 31, 2025, against the previous expiry of March 31, 2024.
With the changes, the funds can now enjoy exemption from tax on dividend income, interest income, or long-term capital gains tax arising from investments made in India.

Though the announcement was first made in the interim budget earlier this year, the tax authority notified the changes on July 18.

“While it's a move that will be welcomed by the infrastructure sector and infrastructure funds, given the long haul of these projects and India's long-term aspirations, the extension should have been considered for a longer duration as the investment needs are unlikely to be met in one year,” said Sunil Gidwani, partner - financial sector, Nangia Andersen LLP.

After an updation of tax-filing utility on the income tax portal this month, taxpayers are being forced to give up a valid rebate of up to Rs 25,000 under the new tax regime if they have booked short-term capital gains, which overrides the Income Tax Act, 1961.

A rebate is a waiver given on income tax to help low-income earners reduce their taxes, which ensures that they file their tax returns. As per the Union Budget 2023 change, individuals opting for the new tax regime are permitted to claim a rebate of up to Rs 25,000 if their taxable income is below Rs 7 lakh.

The anomaly is caused by a different perception of what is “total taxable income” and needs to be corrected as it affects hundreds of low-income earners, say chartered accountants.