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.
No, we are not open to a review. Whether you’ve made profits by selling shares or selling property, it’s the same. It’s ultimately the profit that’s being taxed.
Should we treat the profit made through sale of shares and through sale of property, differently?
In property, we anyway have a provision of levying no tax, if the seller buys another property after selling one, but as such it’s the same thing.In the current revamp of the capital gains tax structure, we’ve simplified the structure, removed tax arbitrage among assets classes. Also, for real estate, for most sellers, the new rate of 12.5% (without indexation) is a reduced rate. Only for some, it’s an increase.
In the two days post Budget, FPIs have sold $1 billion worth equities on a net basis. What’s your sense?
The market/investors are (capable of taking the right call). They know this is only a marginal increase in capitals gains tax. If they were earning 10% per annum, now they will be earning 9.75%. The marginal tax increase, they will be able to easily absorb.
Taxpayers, investors and experts are concerned about tax certainty. Can we expect the changes done this time (on capital gains, STT) will remain?
Certainly. I can assure you this–even though it’s for the government of the day to decide–that tax certainty is essential. We had changed the capital gains tax rates in 2018, previously. From 2018, we’re doing it now. For six years, the rates have remained the same, only this time, we’ve made some change, and marginally hiked the rates. I don’t think in the medium term, there will be any change in rates. On STT too, broadly yes, there may not be any change. Minor adjustments, however, is always a possibility.
FM has spoken about reviewing the Income Tax Act. Are we moving towards adoption of a Direct Tax Code?
We’ve only talked about a review. Now in what form and shape it comes, we’ll have to see. We’ll look at the adoption and formulation of a Direct Tax Code during the review.
Is reduction of TDS rates on the agenda?
Yes, it’s very much on the agenda. We’ll consider it, while reviewing the Income Tax Act in the next six months.
Has there been any progress on the adoption of both Pillar 1 and Pillar 2 GloBE rules?
Pillar 1 discussions are ongoing…we’re constructively engaging with all stakeholders. We’ll agree on a framework only if it’s in our interest, which is paramount. For Pillar 2, a committee has been set up, which is looking at the details.
Can we say that capital gains tax rates were increased, because the personal income tax rates were changed (which will result in revenue loss). Is this why the government chose to advance the rejig of capital gains?
No, there is no direct correlation between the two. I have already said, the revamp of capital gains tax structure was done for the purpose of simplification.