The changes in the capital gains tax announced in the Union budget for FY25 are rational decisions that will benefit people in most scenarios, and it is for the government to decide on the suggestions that come up, Central Board of Direct Taxes chairperson Ravi Agarwal said in an interview.
“We feel that this is a rational decision. In most of the scenarios, people would be benefiting. Yes, there could be some examples where one could say there are some sort of disadvantages, but then that comes with simplification and rationalization,” Agarwal said.
In response to a question on whether any further modifications may be possible in view of public feedback on the amendments to the capital gains tax structure, he said that people are responding and that the government will take appropriate decisions at the appropriate time.
The government announced changes in the holding period, availability of indexation and the rate of tax in an effort to rationalize the complex regime.
This included reduction of rate from 20% to 12.5% and withdrawal of the indexation facility meant to compensate for inflation in the case of property, gold and other assets. Budget documents said this will ease computation of capital gains for the taxpayer and tax administration.
Agarwal also expressed optimism that the government will exceed direct tax collection targets. In the budget presented by finance minister Nirmala Sitharaman, the government estimated a near 12% annual growth in corporate tax collection to ₹10.2 trillion and a 13.6% growth in personal income tax collection to ₹11.87 trillion.
While the growth in both direct and indirect tax collection is in line with the 10.5% nominal gross domestic product (GDP) growth projected for the current financial year, personal income tax collection seems to be taking a pause after a spectacular 25% growth in the year before.
“There are two factors. One, the growth rate last year was quite substantial. So, while every attempt is there to keep the same momentum, we also have to be realistic. This is also the function of growth in the economy. Then, there are certain relaxations that are being given. So that could also have an impact. But we are hopeful that we would exceed the estimates,” said Agarwal.
Expanding the oversight of transactions in the economy and simultaneously lowering tax obligations of the citizens in the new personal income tax regime with lower rates work together in improving compliance, he said.
“We are broadening the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) structure and are also strengthening the third-party information collection process which would help in widening as well as deepening the tax base. And of course, the new tax regime which actually rationalizes the tax obligation prompts the taxpayers to comply,” said Agarwal.
“When we make information about transactions available to the taxpayer and the tax obligation of the taxpayer is not substantial because the rates have been rationalized in the new tax regime, the taxpayer would comply.”
He said that the budget sought to simplify the tax system, rationalize procedures, incentivize the new personal income tax regime and decriminalize tax deducted at source provisions.