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00:00Hi, thanks so much for joining in.
00:20You're watching NDTV Profit and my name is Alex Mathew.
00:24This is a special broadcast on Budget Day to help you understand the changes to the
00:28tax laws that affect you, the individual taxpayer.
00:32And there were a whole host of announcements that were specifically aimed at you this time
00:38around.
00:39And by the way, if you've got questions related to anything that we speak about over the course
00:44of the next half an hour or so, I'd encourage you to send them to us on any of our social
00:48media platforms.
00:49My guest today, who are going to help you understand everything that has changed from
00:54this year onwards, is Sameer Kanaba, tax partner at EY in the studio, Puneet Shah,
01:01partner at Dhruva Advisors, who's joining in remotely, as well as Arvind Rao, the founder
01:06of Arvind Rao & Associates.
01:07Thank you so much, gentlemen, for taking the time.
01:09And the intention, of course, of this show, as I pointed out, is to help our viewers understand
01:13everything that has gone down.
01:15But before we start, let's talk about who this is affecting, because it is affecting
01:20two cohorts primarily.
01:22We're talking about individual taxpayers, and there are several changes that have been
01:28announced to the new tax regime to incentivize it further.
01:32And there's also changes that affect the investors.
01:35So that's the second cohort that we will be speaking about.
01:39Speaking about the first set, let's first listen into the specific portion of this budget
01:44speech today that's related to individual taxpayers.
01:48Here's what Finance Minister Nirmala Sitharaman had to say.
02:48As a result of these changes, a salaried employee
03:16in the new tax regime stands to save up to โน17,500 in income tax.
03:31Apart from these, I'm also making some other changes, as given in the annexure.
03:37As a result of these proposals, revenue of about โน37,000 crore, that is โน29,000 crore
03:47in direct taxes, and โน8,000 crore in indirect taxes, will be foregone, while revenue of
03:54about โน30,000 crore will be additionally mobilized.
03:59Thus, the total revenue foregone is about โน7,000 crores annually.
04:05All right.
04:06So that was the Finance Minister listing out the major changes in the tax slabs.
04:10She also said today, in case you missed it, that two-thirds of individual investors have
04:16transitioned to the new tax regime.
04:19Sameer Khannabar, to you first.
04:22Let's talk about the major change.
04:24Is it going to drastically change what taxpayers do?
04:29Will the remaining third also start moving to the new tax regime?
04:32Yeah, so of course, the idea is to see how we can sunset or transition out the old tax
04:38regime, because we can't be living with both the tax regimes.
04:42And hence, since last couple of years, we are seeing those changes coming in.
04:47Idea is to see how people can move into the new tax regime, make them more attractive
04:51and phase out all deductions, as has happened even in corporates, where all deductions or
04:56exemptions have been phased out.
04:59So that's going to happen, in your opinion?
05:02If we look at the current incentives available to people below 10 lakhs, or maybe even in
05:11the band of 8 to 10 lakhs, the HRA, the deduction for interest, for housing, etc., the old regime
05:19is still beneficial.
05:21And more likely, they are still likely to continue with the old regime, because at that
05:27band, every rupee saved is sort of, is important for the class.
05:34So yes, people may not move.
05:36And of course, while two-thirds have already moved, we will have to just see how people
05:41want to make investments in other class of assets and not be forced to make investment
05:47in a given class, and thereby switch to the new regime.
05:50That's a fair point.
05:51Puneet, coming to you next, what did you make of these changes?
05:54A lot has been said in the run-up to the budget.
05:58The desire of the middle class taxpayer to get a bit of a relief, do you think that this
06:05is that relief?
06:08I don't think so.
06:10I think the amendments are quite few and far between.
06:15Much more was expected.
06:17For example, the slabs which are tinkered in the new regime is very, very less.
06:23I mean, the saving of Rs.17,500 is actually very less as compared to what was desired
06:31or what was expected.
06:34The slabs are changed by Rs.1 lakh at every level without changing the rates of taxes.
06:40So I think the relief is quite marginal to my mind, number one.
06:45Number two, if you look at the deductions, like a standard deduction, which is the only
06:49deduction available under the new regime, is now increased from Rs.50,000 to Rs.75,000.
06:56It's a welcome change.
06:57It's a welcome increase.
06:58However, to my mind, not sufficient considering that Rs.50,000 was set up maybe a decade back,
07:06a year back.
07:07So I think the expectation was at least a deduction to increase to Rs.1 lakh.
07:15And similarly, as Sameer mentioned, the taxpayers, the individual taxpayers will still compare
07:22the deductions which are available under old regime, such as HRA or interest on borrowings
07:29for the house property.
07:30And if those deductions are substantial, clearly they will continue to offer the old regime.
07:36You know, that's an operative point there.
07:39And in fact, it's perfect because we were discussing, Arvind, earlier on in the day,
07:46and you drew up an Excel sheet where you were talking about various, you know, scenarios.
07:52And of course, it differs from person to person, depending on what they're investing in, what
07:57they're claiming.
07:58But there is a threshold beyond which the old tax regime still becomes more beneficial.
08:05Could you spell that out for us?
08:07Yes.
08:08So before the slabs were increased today, if you look at assessment at 24-25 new regime
08:15tax rates, some brief calculations mentioned that as long as the total deduction that an
08:23SSE is claiming is in the range of, say, 3 to 3.5 lakhs of rupees or anything up to 3.5
08:31lakhs of rupees, the new regime favors better.
08:36But the moment the deductions, which would mean the HRA, the ATC, the ATD, NPS, everything,
08:43all this put together, the moment they cross this 3.5 lakhs per annum threshold, then for
08:50taxpayers, I mean, say even the middle class taxpayers, the old regime looks better.
08:56Yeah, okay.
08:58That's a fair point.
08:59You know, by the way, and I hope that I will be able to pull this up at some point over
09:03the course of this conversation, the finance minister was asked this question specifically
09:07at a press conference about whether or not this is one of the steps that is being taken
09:13to finally get done with the old tax regime, whether there will be a sunset on this.
09:19And she said that this is being reviewed, that the changes to the new tax regime are
09:23in order to make the tax regime simpler.
09:26But she said that we still can't comment on whether or not this is the final death knell
09:32for the old tax regime.
09:33And the point that you're taking is well taken, Arvind, with regard to the benefits still
09:38available on the old tax regime.
09:40There were a couple of other changes as well, and specifically on NPS, and this affects
09:45quite a few people.
09:46So let's talk about it, Sameer.
09:48Previously deductions available by the employer's contribution to the national pension scheme,
09:55a lot of government employees benefit from this.
09:58It's been raised to 10% to 14%.
10:00Is a significant change there?
10:02Yeah.
10:03And just one point on the previous slabs, that while the benefit projected 17 and a
10:10half thousand is actually 15 lakhs and above.
10:15It is not getting translated at lower slabs.
10:18We did a back of the envelope calculation.
10:20We said if you're earning up to 10 lakh rupees, the benefit is 10,000 rupees, right?
10:24Absolutely.
10:25So if you look at three to seven lakhs slabs, up to three, of course, exam three to seven,
10:30the benefit is just 2,500, which is basically 25,000 ka 10% kind of here.
10:36So obviously, while what is being projected as benefit is not getting translated, it is
10:42only people in the higher bracket will get benefited under new regime.
10:46And that is why probably the recent statistics which has been put up, interestingly, on the
10:51website, is to say that earlier, one third people were above 5 lakh bracket in terms
10:57of tax return filers.
11:00Now there are 50% people above 5 lakh bracket.
11:04So the two third ratio probably that is coming in is because a lot of people are moving into
11:10higher tax brackets.
11:12And that's why opting, whereas one third are still in the lower tax bracket, probably that's
11:16an interpretation.
11:17But coming back to NPS, so 10 to 14%, again, you know, it is employers contribution.
11:25So whatever employer contributes extra 4% will now no longer get taxed and will be treated
11:31as exempt.
11:33And the way it works is that, you know, this 14%, if my salary is 100, if 14% is contributed,
11:38actually, I say my salary is 86, you know, it's not my 100, because that's how the way
11:43it gets calculated.
11:45So everything is then based on that.
11:47But obviously, any extra contribution above that, which is above seven and a half lakh
11:53rupees, up to seven and a half lakh, there is no impact.
11:56But above seven and a half lakh rupees, it gets the interest gets taxed, not only the
12:00higher incremental amount, but interest gets taxed on an accrual basis.
12:04Sure.
12:05So that's the point.
12:06So that's a fair point.
12:07But it's still, it's still beneficial to the extent of that 4 percentage point increase
12:10in contribution, as long as you stay within that threshold one, more change that I will
12:15talk about with regard to the individual taxpayer before we talk about capital gains and the
12:21rationalization of capital gains tax.
12:24Arvind, we were talking about this earlier.
12:27And this has to do with the tax collected at source for transactions made in the liberalized
12:35remittance scheme.
12:37And you can actually set that off against the TDS or tax deducted at source, if you
12:43communicate that to your employer.
12:45Can you explain that to us?
12:47Yes.
12:48So Alex, while we were discussing this earlier in the day, and we did speak about TCS on
12:53LRS, but we also forgot that if you're buying a motor car, there is TCS on that as well.
13:01So basically, let me just spell it out.
13:04So whenever an individual is remitting money outside of India, under the liberalized remittance
13:11scheme of RBI, which is up to two and a half lakh thousand, two and a half lakh dollars
13:18per year that can be remitted out, there is a 20% tax collected at source on this, as
13:26long as you are crossing that 7 lakh limit threshold that has been defined per individual.
13:32So the moment you're remitting this, there is a TCS collected and paid to the government,
13:37which now under the amended proposal, amendments in the proposal say that the employer can
13:45take cognizance of this TCS, if the employee declares it to the employer, offset it against
13:51the tax liability of the employee for the year, and accordingly deduct lower TDS on
13:58the monthly salaries.
14:00So the direct benefit out of this is for all those people who are either buying a motor
14:04car or sending money outside, if they have suffered TCS, they can disclose it to the
14:10employer and thereby it could mean a little higher in hand money for them from their salary.
14:18Fair point and it's definitely a benefit because it's not a small amount of TCS that gets collected,
14:24it's quite a large amount.
14:25And that gives you more spending ability through the year, if you communicate it to your employer,
14:31so you should do that.
14:32Let's also talk about the retail investor and how your lives changed from today onwards.
14:37In fact, let's listen into what the finance minister had to say about the rationalization
14:42of the treatment of capital gains.
14:45Capital gains taxation is also proposed to be hugely simplified.
14:53Short term gains on certain financial assets shall henceforth attract a tax rate of 20%
15:01while that on all other financial assets and all non-financial assets shall continue to
15:08attract the applicable tax rate.
15:12Long term gains on all financial and non-financial assets, on the other hand, will attract a
15:19tax rate of 12.5%.
15:22For the benefit of the lower and the middle income classes, I propose to increase the
15:29limit of exemption of capital gains on certain financial assets to 1.25 lakh rupees per year.
15:41Listed financial assets held for more than a year will be classified as long term while
15:48unlisted financial assets and all non-financial assets will have to be held for at least two
15:55years to be classified as long term.
15:58Okay, so a complaint that tax experts and indeed several investors had for many years
16:06is that the treatment of various assets when it came to capital gains and taxation of capital
16:13gains was very different.
16:15Equity was one year for long term capital gains, real estate was two years, gold as
16:21well as certain other assets were taxed as long term capital gains if held beyond three years.
16:27Now that's been simplified.
16:28Puneet, I'm coming to you hopefully for a further clarification as to what constitutes
16:34financial assets, what constitutes unlisted assets and non-financial assets.
16:41Yeah, sure.
16:43I think this is the single most important amendment made by the finance minister and
16:49I think it was overdue.
16:51There has been long pending demand in terms of rationalization of the capital gains tax
16:56regime.
16:57As you rightly said, there's multiple rates, multiple holding period for different assets,
17:03financial assets, non-financial assets, indexation available, no indexation available.
17:07So several issues in the regime and I think a good attempt has been made to rationalize
17:15or to simplify the capital gains tax regime.
17:18So if I were to just summarize, listed is 12 months so far as the long term capital
17:27gain is concerned.
17:28Anything below 12 months would be short term capital gain for the listed securities.
17:35That includes debentures as well as shares.
17:38So far as unlisted is concerned and all other assets are concerned, it would be 24 months.
17:43So now the 36 months period has gone away.
17:46So that's easy.
17:47It's 12 months or 24 months.
17:50So far as the rate of tax is concerned, again, there are only two rates, actually three rates.
17:55One is 12.5% for long term capital gains on all assets, whether it is financial assets
18:01or non-financial assets.
18:02A very bold step taken, all assets treated at par, whether they are financial or non-financial
18:10assets, the rate of tax for long term is 12.5%.
18:16Remember, the finance minister has removed indexation benefit.
18:20Again, a very important measure and maybe rightly so because the rate of tax for several
18:28long term assets are reduced from 20% to 12.5% unlisted stocks or property or whatever.
18:35So indexation benefit has been removed.
18:38So it's 12.5% without indexation benefit.
18:41So far as short term assets are concerned, it is applicable, the rates will be applicable
18:46in the slab rates, applicable slab rates, taxes will be paid except the listed equity
18:52where the rate of tax is increased from 15% to 20%.
18:58So for listed equity, the rates have gone up from 10 to 12.5 and from 15 to 20, while
19:06for unlisted, it has come down from 20 to 12.5 so far as long term is concerned.
19:12So it's a mixed bag in that sense.
19:15Maybe depending on your asset class, it will be either beneficial to you or it would be
19:21or you will have a higher tax impact.
19:25So there is one specific class, so just to complete, there is one specific class, which
19:29is as we call Section 50 AA, which are specified mutual funds or marketing debentures, where
19:38irrespective of the holding period, whether it is 12 months, 24 months, it would be considered
19:44to be short term capital asset and the rate of tax would be on a slab rate basis.
19:49So that's asset class, which is like unlisted debentures, etc. are also now included in
19:53that.
19:54Yeah.
19:55The higher rate of tax has been provided in that.
19:57And that doesn't change.
19:59The change to the treatment of debt mutual funds was done a couple of budgets back and
20:04that remains to be the case.
20:05Sorry to add, they have just changed the definition.
20:08Earlier, it was like 35%, less than 35% to equity, now they have aligned it with other
20:14equity oriented mutual fund definition to make it 65%.
20:18So I think that rationalization was also, I think it's a step in the right direction.
20:25Absolutely.
20:26Now, let's delve a little deeper into this indexation piece, because there might have
20:30been some misconceptions about whether or not this ultimately is beneficial or harmful.
20:37And we've done some calculations looking at the inflation.
20:40So first of all, if you don't understand this, the indexation benefit is what allows you
20:47to set off the impact of inflation against the capital gains that you're making on a
20:53particular asset.
20:54So just to put things very simply, if you bought a house in 2005, worth 1 crore rupees,
21:01and if the value of that house is now 2 crore rupees, you've made a gain of 1 crore rupees.
21:06You have to look at the impact of inflation between 2005 and 2024, set that off against
21:14the capital gains that you're making and then pay 20% on the remainder.
21:19That is being done away with.
21:20So you would probably be thinking that that's negative.
21:23But the reality is that it may not be.
21:26In fact, in most cases, it's either neutral or positive.
21:29No, you're right.
21:31And if we look at at least the immovable property, at least the back of the envelope calculation
21:39seems to suggest that if you're holding property since 2003 and later on, then the new amended
21:48rate of 12.5% as a long term capital gain is more beneficial than the indexation that
21:55you are getting it.
21:56And obviously, the indexation benefit started from 2001.
21:59Yes, that's the base year.
22:01Yeah, that's the base year.
22:02So it's hardly you lose out anything.
22:04So from that perspective, if you have recently bought property 2012, 2015, whatever, and
22:11if it is long term and you're selling it, obviously, this is going to be leaving more
22:16money in your pocket in terms of taxes in case you are selling it.
22:21And obviously, of course, you have a corresponding exemption if you're buying another house.
22:24Yes.
22:25That remains.
22:26Yeah.
22:27Okay.
22:28So very quickly, that last point that I wanted to talk about, there has been a difference
22:32between the treatment of dividends, as well as buybacks.
22:36And this was clarified today, there was a change that was announced, and the buybacks
22:41that you participate in.
22:43So suppose you have equity shares of a company, and you participate in the buyback that a
22:47company has announced, you sell shares in the buyback, that is now taxable in your hands.
22:52But there is a clarification.
22:53We earlier thought that this would be capital gains tax, but it is not capital gains tax.
22:58Amit, can you explain that?
22:59Yeah.
23:00So buyback, again, flip flop, earlier buyback for listed shares was capital gains.
23:06Then buyback tax was only applicable for unlisted.
23:09Then they brought in buyback tax for listed, where the company used to pay buyback tax
23:13on the differential value of the buyback minus the price at which the shares were issued,
23:20which was being paid as at the rate of 21 odd percent by the company.
23:25Now a flip flop to say that effective 1st October, so this is effective 1st October,
23:31unlike the indexation and all of that which are effective today.
23:34So with effect from 1st October, the buyback will be taxable first, not in the hands of
23:40company, but in the hands of shareholders.
23:43Second, this will be treated as kind of dividend income, taxed as income from other sources.
23:51So it will get taxed as per the slab rates.
23:54And the cost that you have incurred to buy those shares, so for example, you bought the
24:00shares at IPO or at a face value, 10 rupees.
24:05And say you have 10 shares, so your cost is 100.
24:09So 100 effectively becomes your loss, which is available to be offset against your capital gains.
24:17So in the same year, if you have any capital gain, you can offset the cost being resulting
24:24into loss against the capital gain, or you can carry forward.
24:27And whatever you gain, net of that loss is what you pay based on slab rate.
24:33So one is of course the buyback value that you have realized is taxed as slab rate as
24:39per your slabs.
24:40The capital gain will get taxed as capital gain because that is the stock that you have
24:44sold on the market.
24:46So that is capital gains and you are offsetting.
24:48And then there is a gain, you pay 12.5% long term, 20% short term.
24:52So all of this, some of this, I shouldn't say all of this because I think my guests
24:57today have done an incredible job explaining sometimes what is quite complicated.
25:02I must thank all of you.
25:03Thank you so much for joining in and for answering all the questions that I had.
25:07And I'm sure if my viewers have more questions, you will be amenable to answering them later.
25:12Of course, we will take them up over the course of today as well as in the coming days as well.
25:17Thank you so much for tuning in.
25:18There's lots more coming up over the course of this evening.
25:21And this is NDTV Profit.