WEBVTT NOTE recognizability 0.836 NOTE language en-us 00:00:02.860 --> 00:00:07.945 34 hours to go for the budget and today we discuss what are the key 00:00:07.945 --> 00:00:12.013 tax changes expected. The expected tax changes are going to run for 00:00:12.013 --> 00:00:16.759 you on your screen. I don't have the time to read them, but I'll 00:00:16.759 --> 00:00:20.827 straight away toss them to the two experts near Kapadia, national tax 00:00:20.827 --> 00:00:25.234 leader at EY and Himanshu Parikh, the partner tax at KPMG to discuss 00:00:25.234 --> 00:00:30.319 what we should be prepared for in terms of our take home pay and our 00:00:30.319 --> 00:00:34.048 savings, our earnings. Gentlemen, thank you very much for joining me 00:00:34.048 --> 00:00:39.159 today. Mystic Padya, first up, you know the big thing that all of us 00:00:39.159 --> 00:00:43.042 who are watching the channel are interested whether we are stock 00:00:43.042 --> 00:00:47.278 investors or not is on the personal income tax. Are you expecting 00:00:47.278 --> 00:00:51.514 that the known exemptions part is going non exemptions income tax is 00:00:51.514 --> 00:00:56.103 going to become, oh sorry is going to become very important in this 00:00:56.103 --> 00:00:57.868 budget that will be pushed. 00:00:59.920 --> 00:01:04.860 Right, good morning later. So I think on the corporate tax front, for 00:01:04.860 --> 00:01:09.800 business tax front, most of the reforms are already in place. The, If 00:01:09.800 --> 00:01:14.740 you think about it with this last budget of this term of the 00:01:14.740 --> 00:01:18.920 government, it's a great opportunity for the government to reform the 00:01:18.920 --> 00:01:23.100 personal income tax regime. We have to admit it's today quite 00:01:23.100 --> 00:01:27.280 complicated with choices given under the old regime and the new 00:01:27.280 --> 00:01:29.940 regime etcetera. Therefore the expectation is that. 00:01:30.080 --> 00:01:33.941 The government will simply go with a concessional tax regime, which 00:01:33.941 --> 00:01:38.504 is in play, but with some tweaks to make it more attractive. Today, 00:01:38.504 --> 00:01:43.418 as we know, there have been very few takers in that sense. What we 00:01:43.418 --> 00:01:47.279 have recommended is that, you know, for example, the highest income 00:01:47.279 --> 00:01:52.193 limit should at least go up to 20,00,000 before you kick in at 30%. 00:01:52.193 --> 00:01:56.405 And if you look at it, that's adjusted for inflation from the 00:01:56.405 --> 00:01:59.564 15,00,000 limit, which is currently there. Secondly, for health 00:01:59.564 --> 00:02:00.968 insurance and for education. 00:02:01.140 --> 00:02:04.891 You should continue to provide an investments as you rightly said 00:02:04.891 --> 00:02:08.301 continue to provide some incentives for savers because it's very 00:02:08.301 --> 00:02:12.734 important for the savings rate in India to sustain if not increase to 00:02:12.734 --> 00:02:17.849 fund the CapEx which is which is everybody says is a is a sign cure 00:02:17.849 --> 00:02:22.964 non for a growing economy and the third is and the third is that you 00:02:22.964 --> 00:02:27.397 know you you don't want a complexity of the old regime etcetera. You 00:02:27.397 --> 00:02:31.148 have to prune the deductions and therefore we are saying that. 00:02:31.270 --> 00:02:34.618 Just focus on these three investments, health and education. 00:02:35.290 --> 00:02:39.622 OK. Your word on this, Himanshu, are you also expecting that they 00:02:39.622 --> 00:02:43.593 will make the, you know, non exemptions, direct income tax more 00:02:43.593 --> 00:02:48.286 attractive? And you know, what we were told was that they would keep 00:02:48.286 --> 00:02:51.896 standard deduction and allowed that ATCC deductions on medical and 00:02:51.896 --> 00:02:56.589 home. That I think is what Mr. Kapadia is saying. You also expect 00:02:56.589 --> 00:02:59.116 that that may be the end result. 00:02:59.920 --> 00:03:03.712 Yes, very much expect that Lata, because, you know, in terms of 00:03:03.712 --> 00:03:07.188 recent news reports, if you see less than 5,00,000 taxpayers have 00:03:07.188 --> 00:03:10.980 opted for this new regime in terms of paying personal taxes, you 00:03:10.980 --> 00:03:14.772 know, without availing of those exemptions, out of seven crore or tax 00:03:14.772 --> 00:03:18.248 returns have been which have been filed, only 5,00,000 odd people 00:03:18.248 --> 00:03:22.040 have opted for the new regime. And therefore there's clearly a need 00:03:22.040 --> 00:03:26.464 to revamp the new regime and make it far more attractive. And if that 00:03:26.464 --> 00:03:30.572 not be so, there's clearly a need to, you know, increase the basic. 00:03:30.680 --> 00:03:34.020 Exemption limit of 2.5 lakhs because that has been stagnant 00:03:34.020 --> 00:03:37.694 since financial year 1415. It's been eight years since which it 00:03:37.694 --> 00:03:41.702 has not been changed. Similarly there is a need to increase the 00:03:41.702 --> 00:03:45.710 limit of section 8C which remains at 1.5 lakhs against in the 00:03:45.710 --> 00:03:50.052 last five years, last eight years or so. And again I need to 00:03:50.052 --> 00:03:53.392 increase the deduction on interest on housing loan which remains 00:03:53.392 --> 00:03:55.730 at rupees 2,00,000 since last several years. 00:03:56.920 --> 00:04:01.596 OK. Well, I just want to say two things in defence of the government. 00:04:01.596 --> 00:04:06.272 One, I don't think they can get the same kind of tax collections that 00:04:06.272 --> 00:04:10.948 they got last two years. You know ultimately the tax grows as much as 00:04:10.948 --> 00:04:15.290 the nominal GDP grows. So while last year rather this year they have 00:04:15.290 --> 00:04:19.298 got like 18% net tax, you know revenue growth. The coming year 00:04:19.298 --> 00:04:23.640 everyone's expecting only 10 or 11% like nominal GDP. So I don't know 00:04:23.640 --> 00:04:27.648 whether they can afford giveaways and Kapadia would you know how much 00:04:27.648 --> 00:04:32.621 the. The government will sacrifice if they increase, you know, as you 00:04:32.621 --> 00:04:36.320 say, the housing loan limit or increased standard deduction. 00:04:38.050 --> 00:04:42.034 Yeah, let that, that's that's a very fair challenge. I think the 00:04:42.034 --> 00:04:46.018 government will have to grapple with. We don't know the exact number, 00:04:46.018 --> 00:04:50.998 but it would be fair to say that any, any you know giveaways if you 00:04:50.998 --> 00:04:54.650 like, exceeding 10,000 crores frankly will be very difficult in terms 00:04:54.650 --> 00:04:58.634 of the balancing act. Let's not forget and I think the government 00:04:58.634 --> 00:05:03.614 will make it a point to continue with the glide path to come down to 00:05:03.614 --> 00:05:07.266 a 4.5% fiscal deficit which is recommended by the Finance Commission 00:05:07.266 --> 00:05:09.258 by FY20 6 as you rightly. 00:05:09.360 --> 00:05:13.780 Pointed out we have the IMF figures, the economic survey will be out. 00:05:13.780 --> 00:05:17.520 Expectation is that the growth projection for next year for India, 00:05:17.520 --> 00:05:21.600 though better than the global growth projection will be muted. And as 00:05:21.600 --> 00:05:25.680 you rightly said, it will impact tax currency to an extent. However, 00:05:25.680 --> 00:05:30.100 the silver lining Lata as we know is the inflation factor that will 00:05:30.100 --> 00:05:34.520 help the government in a couple of ways. One is the tax currency 00:05:34.520 --> 00:05:38.940 itself will be better because of circulation. No, Sir, on that I'm on 00:05:38.940 --> 00:05:42.675 slightly. Different ground because I have done the poll with 00:05:42.675 --> 00:05:46.140 economists that inflation helped this year. Next year WPI is expected 00:05:46.140 --> 00:05:50.550 to be you know zero or one, you know single digits for many months 00:05:50.550 --> 00:05:54.960 and WPI goes into the calculation of nominal GDP for at least 60%. So 00:05:54.960 --> 00:05:59.370 I don't think we have the inflation crutch next year. It won't be to 00:05:59.370 --> 00:06:04.095 the same extent that I agree with you. But you know I think the what 00:06:04.095 --> 00:06:07.875 we have seen is GST collections particularly are are helped by this 00:06:07.875 --> 00:06:10.080 factor and it won't be the same. 00:06:10.210 --> 00:06:14.466 It wouldn't be the same that is for sure. And that's what I'm saying 00:06:14.466 --> 00:06:18.418 that it will have to be a balance here. Anything more than 10,000 00:06:18.418 --> 00:06:22.066 crores will be difficult for the government to give away. Yeah. So 00:06:22.066 --> 00:06:25.714 that that is what I'm expecting at best. That's a very valuable 00:06:25.714 --> 00:06:30.274 number you have put on the table. So let us not, you know, run away 00:06:30.274 --> 00:06:33.618 with expectations of giveaways, probably something to make as both of 00:06:33.618 --> 00:06:37.266 you say the non exemption income tax regime a little more attractive. 00:06:37.266 --> 00:06:40.002 OK. Now the big if I can add Lata. 00:06:40.330 --> 00:06:45.402 If I can just add, you know the on the on the corporate tax, it is 00:06:45.402 --> 00:06:48.889 important that for some of the cobwebs like withholding taxes for 00:06:48.889 --> 00:06:53.327 example, we have today zero to 30% for some 30 items. You know, what 00:06:53.327 --> 00:06:55.546 business is expecting is more you know. 00:06:56.990 --> 00:07:01.082 Cleaning up of some of these issues in compliance rather than any 00:07:01.082 --> 00:07:05.174 further relief. To be fair, I've not seen any corporate or business 00:07:05.174 --> 00:07:08.925 representations talking about any further relief. So there it's a low 00:07:08.925 --> 00:07:13.017 hanging fruit is all I'm saying for the government. Fair enough to 00:07:13.017 --> 00:07:17.109 attract more investments fair and that is one of their prime goals. 00:07:17.109 --> 00:07:21.883 I'll just come to the corporate in a minute. Let me just finish this. 00:07:21.883 --> 00:07:25.634 Personal income tax surcharges, Mr. Parikh, are you expecting, I mean 00:07:25.634 --> 00:07:27.339 after all that highest level? 00:07:27.470 --> 00:07:32.930 At 42% has been a human cry, but on a pre election budget you think 00:07:32.930 --> 00:07:34.750 it'll one should expect that. 00:07:35.690 --> 00:07:39.820 But one should, I mean that's a fair expectation if you ask me later 00:07:39.820 --> 00:07:43.360 because you, you know, you look at the highest corporate tax rate 00:07:43.360 --> 00:07:46.605 today in India that's 25% for companies which are involved in 00:07:46.605 --> 00:07:49.850 manufacturing activities. The tax rate is only 15% as compared to 00:07:49.850 --> 00:07:53.390 that on the personal tax front, the highest tax rate you know 00:07:53.390 --> 00:07:56.930 surmounts to more than 42% which is extremely high by any standard 00:07:56.930 --> 00:08:00.470 and I think that's a fair expectation or that that that be 00:08:00.470 --> 00:08:04.305 rationalized and brought down to about 30% or so. OK. Yeah, we are 00:08:04.305 --> 00:08:05.780 just running the surcharges table. 00:08:06.040 --> 00:08:11.672 So yeah, it is very high for above 5 crore. Let me come to the big 00:08:11.672 --> 00:08:15.544 elephant in the room which everybody who's watching the channel is 00:08:15.544 --> 00:08:19.416 interested in. Short term capital gains tax on equities, Mr. Kapadia, 00:08:19.416 --> 00:08:23.992 you know the market is only worried that it should not be equated 00:08:23.992 --> 00:08:28.920 with debt because if it becomes three years, no problem. But if it is 00:08:28.920 --> 00:08:33.144 taxed at your marginal tax bracket, hell can break loose. Should we 00:08:33.144 --> 00:08:35.256 be prepared for such a shock? 00:08:37.400 --> 00:08:42.830 So let so let up. Let's just talk about the the design of short term 00:08:42.830 --> 00:08:46.812 capital gains tax as it prevails in most countries, countries which 00:08:46.812 --> 00:08:50.070 have a philosophy of attracting more investments and therefore 00:08:50.070 --> 00:08:53.690 exempting capital gains in some cases even dividends. They really 00:08:53.690 --> 00:08:58.396 don't care whether it's short term or long term. Now those will be 00:08:58.396 --> 00:09:02.740 hotspots for investments whether we like it or not. Other than those 00:09:02.740 --> 00:09:07.084 countries it is not unusual for countries to tax short term gains 00:09:07.084 --> 00:09:11.560 including. Either way, in the US, at the applicable marginal tax 00:09:11.560 --> 00:09:15.938 rate. Now that's the design point. That's the philosophy of short 00:09:15.938 --> 00:09:20.316 term, because short term is equated to normal business or marginal 00:09:20.316 --> 00:09:25.490 rate income levels. Now the question is whether we can afford to do 00:09:25.490 --> 00:09:31.460 it. I don't have that data. How much of the, for example, in my view, 00:09:31.460 --> 00:09:36.634 we cannot afford to get the FBI's very, you know, worried about tax 00:09:36.634 --> 00:09:37.828 stability in India. 00:09:37.960 --> 00:09:42.484 We cannot afford whatever we might say because we still need stable 00:09:42.484 --> 00:09:47.008 flows, including FBI flows. What percentage of FBI is in short term, 00:09:47.008 --> 00:09:51.909 I am unable to say. But if that is substantial, I don't think 00:09:51.909 --> 00:09:56.433 government will try and tinker with the short term capital gains tax 00:09:56.433 --> 00:10:01.334 rate. That's my view point, especially at a time when you know, there 00:10:01.334 --> 00:10:05.104 are external worries with geopolitical shifts, perhaps this kind of 00:10:05.104 --> 00:10:07.743 experiment will not be indulged in. Yeah. 00:10:08.160 --> 00:10:11.628 I just think I'll just get him out to do. Sorry. Yeah, 00:10:11.628 --> 00:10:13.073 yeah. Sorry. Himanshu, your view? 00:10:14.740 --> 00:10:18.523 In my mind, if you look at the entire capital gains tax regime, 00:10:18.523 --> 00:10:22.015 that's become far too complex over the years. Now you have different 00:10:22.015 --> 00:10:25.216 rates of tax and different periods of holding of assets for 00:10:25.216 --> 00:10:28.708 classifying them as long term or short term visa with different types 00:10:28.708 --> 00:10:31.327 of assets, different categories of taxpayers. And therefore clearly 00:10:31.327 --> 00:10:34.819 there's a need to revamp the current capital gains tax regime and 00:10:34.819 --> 00:10:38.893 make it more simpler later. I would agree with you that as far as 00:10:38.893 --> 00:10:42.094 financial assets are concerned, I don't think there's any merit in 00:10:42.094 --> 00:10:44.422 touching them that the current tax regime which. 00:10:44.520 --> 00:10:47.144 Which is applicable for financial assets, especially listed 00:10:47.144 --> 00:10:51.080 securities that should stay intact. But there's a need or room for 00:10:51.080 --> 00:10:54.688 simplifying the overall capital gains tax regime, I don't think. I 00:10:54.688 --> 00:10:58.952 think short term equity may be raised maybe two years or something. I 00:10:58.952 --> 00:11:03.544 hope the apple cart is not upset. There are. I'm I'm told I'm running 00:11:03.544 --> 00:11:07.808 out of time SO2 quick things buy back tax to be shifted from 00:11:07.808 --> 00:11:10.760 companies to shareholders. Is that even something the government 00:11:10.760 --> 00:11:15.024 would attempt? I mean so far they have not gone to the shareholder 00:11:15.024 --> 00:11:18.118 because it's. Simply difficult to administer. They would rather stick 00:11:18.118 --> 00:11:20.366 with corporates. What do you think, Mr. Kapadia? 00:11:22.450 --> 00:11:26.740 Later I don't buy the argument that it is any longer difficult to 00:11:26.740 --> 00:11:30.040 administer. Don't forget dividend tax at the corporate level was 00:11:30.040 --> 00:11:34.000 brought in with that philosophy that you know is very difficult to 00:11:34.000 --> 00:11:37.300 track individual individuals earning dividend income. But we did away 00:11:37.300 --> 00:11:41.260 with that right very recently for all the reasons we know of 00:11:41.260 --> 00:11:45.220 digitization 360 degree insight which is now available. So I put and 00:11:45.220 --> 00:11:49.180 you know buyback is there really in very, very few cases relatively. 00:11:49.180 --> 00:11:52.480 So I don't think that's an argument for not being. 00:11:52.580 --> 00:11:56.766 Able to do it. If government wants to do it, I think they 00:11:56.766 --> 00:12:00.952 can go ahead and do it. OK, well, since we're out of time, 00:12:00.952 --> 00:12:03.528 your best expectation him, Himanshu, your best expectation 00:12:03.528 --> 00:12:04.816 on tax front tomorrow. 00:12:06.280 --> 00:12:10.687 My, my best expectation I would, I would expect that as far as 00:12:10.687 --> 00:12:14.416 corporates are concerned, their biggest pain point today in India is 00:12:14.416 --> 00:12:18.145 litigation and I would expect the government to introduce some kind 00:12:18.145 --> 00:12:21.874 of a mediation scheme which will help corporates avoid tax litigation 00:12:21.874 --> 00:12:25.264 going forward. We've seen mediation being quite successful in other 00:12:25.264 --> 00:12:29.332 parts of the world and you know that's something we should strongly 00:12:29.332 --> 00:12:33.400 consider excellent. Mr. Kapadia, same question to you. One big ask or 00:12:33.400 --> 00:12:36.451 expectation not ask really time for ask is over. 00:12:38.720 --> 00:12:43.088 A relatively boring tax budget later, OK, that would be best. I mean 00:12:43.088 --> 00:12:47.120 it would mean stability I guess though I I suppose that will 00:12:47.120 --> 00:12:51.152 disappoint those of us who are expecting that perhaps a little bit 00:12:51.152 --> 00:12:55.184 income tax. Thank you very much for joining us and giving us 00:12:55.184 --> 00:12:58.880 something to some reference point when the tax announcements come in 00:12:58.880 --> 00:13:01.568 tomorrow, wrap up on bazaar chartbusters up next.