Pranav Sayta's Views On New Indexation Rules | NDTV Profit
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00:00Hi, thanks so much for joining in.
00:20You're watching NDTV Prophet.
00:21My name is Alex Mathew.
00:22With me is Harsh Saita.
00:23And I'm sure that you've got several questions about the capital gains tax regime that was
00:29rationalized by the Finance Minister in Budget 2024.
00:33You heard it right here on NDTV Prophet in the run-up to the budget.
00:37And the man who spoke about the possibility of this happening is joining us right now
00:42to take you through these changes and how life changes for you.
00:46Pranav Saita, who is National Leader, International Tax and Transaction Service at EY India is
00:52joining in.
00:53Pranav, thanks so much for taking the time.
00:54And while we're going to delve quite deep into several of the changes, I'm quite curious
01:00about one that has left me a little confused.
01:02Of course, I've gotten a little bit of clarity since yesterday.
01:06But this has to do with the treatment of property and the question mark around the treatment
01:13of long-term capital gains tax for property bought before 2001.
01:18And the clarification I feel is needed because the Revenue Secretary in comments made yesterday
01:24has said that the indexation benefit for these properties that were bought before 2001 will
01:31continue.
01:32How do you read this and how does this actually work?
01:35Great.
01:36Sure, sure, Alex.
01:38This has been a confusion ever since that particular interview surfaced and people saw
01:42it.
01:43So the way I look at it is that based on the finance bill, which has been introduced in
01:48Parliament yesterday, on a bare reading of it, what I can clearly gauge is that indexation
01:54is completely gone.
01:56So there is no concept of indexation once this bill becomes law of statute and is passed
02:02by the Parliament.
02:03So the long-term capital gains tax will not now qualify for any indexation, but they have
02:10not touched another provision in the law, which essentially says that if I have acquired
02:16any capital asset before 1st April 2001 and I transfer, sell that asset today, then I
02:25am eligible to take either the actual original cost or the fair market value as on 1-4-2001
02:35as a cost of acquisition while computing my capital gain.
02:38Effectively, therefore, if I had acquired an asset before 1st April 2001, any appreciation
02:45in the value of that asset up to 1st April 2001 is not taxable because that value is
02:50allowed to me as a cost of acquisition.
02:52If I had acquired an asset, maybe a property in 1980 at 100, the fair market value appreciated
02:59as on 1st April 2001, it was worth maybe 250.
03:04Then when I sell the asset today, I could either take my original cost of 100 or the
03:10fair market value as on 1st April 2001, 250.
03:14I will take 250 as a deduction towards deemed cost and my capital gain will be worked out
03:19accordingly.
03:20So if I sell the asset today at 1000, 1000-250, 750 will be my capital gain, not 1000-100,
03:28my actual original cost.
03:30So 900 will not be my capital gain, but my capital gain will be 750 because I'm allowed
03:35to claim a deduction of 250, which is the fair market value as on 1st April 2001.
03:41Hitherto, that fair market value was further allowed to be indexed till today.
03:47That I don't think is possible based on a reading of the finance bill.
03:51I think probably what the minister might have meant is that the appreciation in value between
03:581980 to 2001 April is in any case being allowed as a deduction, not strictly by way of any
04:05indexation, but because I'm being allowed the fair market value as on fund for 2001
04:10as a deemed cost.
04:12Therefore for all practical purposes, you are not getting taxed on the appreciation
04:18between 1980 and April 2001.
04:21And I think that's probably what he meant.
04:23It's hard to say for sure, but that's what I would guess he might have meant.
04:28Of course, if they want to over and above this give indexation, they could always do
04:33But that I think will require a change in the current provisions of the finance bill.
04:38That's a fair point.
04:39One more mention that he made, Pranav, in that same interview that you're referring
04:44to where he said that in the event, in the unlikely event, he didn't say unlikely, but
04:51I think that it's quite unlikely where you have a property that you have acquired before
04:552001 and the value of that property has declined.
05:00And so therefore the fair market value in 2001, which you said was 250 in your illustration,
05:08if you had bought it in 1980, assume that it was 500, it's fallen to 250.
05:13Can you then, based on the way that you've explained it, choose to take the original,
05:19the 500 value?
05:20It is an option.
05:21Absolutely.
05:22You can take either the original actual cost of 500 or the fair market value as on 250.
05:28So in your illustration, a taxpayer would always choose to take 500 and not 250.
05:34That would happen in your illustration because he has an option.
05:37You are right.
05:38Understood.
05:39But indexation in any case is not available based on the current reading of the finance
05:41bill.
05:42Yeah, sorry.
05:43Understood.
05:44So, sir, just to try and cap this point off, first, indexation has been completely removed.
05:51That seems to be the clear intent, at least at the moment, the way the bill reads.
05:56And secondly, for non-financial assets, you will get the advantage of indexation via fair
06:03market value as of 2001 or the cost, whichever is higher.
06:07And there has been no change to the latter part of what I just said.
06:11That's right.
06:12That provision has always been there in the law.
06:14There is no change in that provision in the current proposed finance bill.
06:19But yes, you would get the option to take either the FMV as on one for 2001 or the original
06:25cost.
06:27That would be right.
06:28Sure, sir.
06:29No indexation, no indexation at all.
06:30Sure, sir.
06:31And so, if the bill were to change, right now, if hypothetically now the way the bill
06:35is worded, it is what it is.
06:37But say if it were to change as per what the revenue secretary seems to be suggesting,
06:42is it logical to provide indexation benefit, especially when you already have a provision
06:49which is allowing the incremental value in your example from 1980 to 2001 to already
06:54get captured in some form and thereafter you get indexation benefit and a lower rate
06:59of tax?
07:00No, so I don't think they would allow between 1980 to 2001 any indexation.
07:07That seems out of question.
07:08The index starts from the base year 2001, which is 100.
07:12The base year of index is 100 and that is in 2001 April.
07:17So if they do choose to allow indexation, I would feel they would allow between 2001
07:23and the date of transfer, which is today.
07:26And the indexation on that would be the FMV as on 2001 or the original cost of 1980, but
07:32indexed from 2001 till today, because the index base year itself is 2001.
07:39I don't think that is intended given that they have reduced the tax rate for these assets
07:45from 20% to 12 and a half.
07:47That seems to be in substitution of the indexation benefit that was either two available.
07:52So I don't think that is intended, but if they do want to grant something and if that's
07:57what he meant, then the finance bill will need to be changed and indexation could be
08:02allowed from 2001 till today on these particular assets.
08:07Either you take the original cost or you take the FMV at your option and then index it from
08:132001 till today.
08:14Otherwise, you will have to even change the index base year, which I would think even
08:19lesser possibility that they ever intended.
08:22And that would have to go into a revised bill and the print would have to change effectively
08:27for that to happen.
08:28That's right.
08:29I am just curious what you make of this new structure, because this falls very close to
08:35the three buckets that you had suggested in your conversation with me a few days before
08:40the presentation of the union budget.
08:42There are effectively two buckets now, financial assets on the one hand and non-financial assets
08:48and unlisted securities in another.
08:52It's quite a simple reading of the regime, according to me.
08:58That's right.
08:59So they have really simplified it.
09:01I must say, I wouldn't deny that at all.
09:04So the way I look at it is in very simple terms, for listed equity shares, STT paid,
09:11equity mutual funds and re-TINVIT units, the short term capital gains tax rate has been
09:17increased from 15% to 20%.
09:19That is bucket one.
09:21And for all other assets, short term, it's a normal slab rate, regular income, whatever
09:27the tax rates apply.
09:29So that's very simple.
09:31Listed equity shares, STT paid, as well as equity mutual funds, re-TINVIT units, short
09:37term capital gains tax rate, which was 15 goes up to 20% for all transfer of shares,
09:44et cetera, on or after 23rd July, 2024.
09:48Short term capital gains tax, normal rates for all other assets other than listed equity
09:52shares, equity mutual funds, re-TINVIT units.
09:55When it comes to long term capital gains tax for listed equity shares, STT paid, equity
10:00mutual funds and re-TINVIT units, it has been increased from 10% to 12.5%.
10:06That's a disadvantage, but that is a second bucket where the long term capital gains tax
10:11rate has been increased.
10:14For all other assets other than these, the long term capital gains tax rate has actually
10:20been decreased from 20 to 12.5%, but indexation has been taken away.
10:26So that's the simple bucket.
10:28Listed equity shares, equity mutual funds, re-TINVIT units, short term rate, 15 to 20
10:35increase.
10:36Other assets, short term rates, same, normal slab rates.
10:40For listed equity shares, STT paid, equity mutual funds and re-TINVIT units, long term
10:45rate increased from 10 to 12.5%.
10:49That's a disadvantage.
10:50Short term rates reduced from 20 to 12.5%, but indexation gone.
10:55So it might be to your advantage, it might be to your disadvantage, depending upon whether
11:00the benefit of the indexation, which now goes away, would have outweighed the 7.5% tax saving
11:07that you get by reduction in tax rate from 20 to 12.5%.
11:10But the intention seems simple.
11:13Maybe you gain in some, maybe you lose in some, but let's do away with complexity.
11:17Let's make life simple.
11:19No indexation, 20 to 12.5% reduced long term capital gains tax rate on all other assets.
11:26There's only a slight nuance and that is for non-residents on unlisted securities, the
11:35long term capital gains tax rate has increased from 10 to 12.5% by this budget.
11:42And finally, the period of holding for all listed securities, including re-TINVIT units
11:50and equity mutual funds, the one year period for determining the threshold of long term
11:55applies.
11:56For all other assets, irrespective of the nature of the asset, two years is the threshold
12:02for becoming long term.
12:03With one big catch, and that's the third bucket, debt mutual fund units acquired before
12:1031st, March 23, market link debentures, unlisted debentures, bonds, et cetera, are always short
12:23term.
12:24So, so, so debt mutual fund units, market link debentures and unlisted debentures, bonds,
12:30unlimited period for becoming long term.
12:33There's no period, they are always regarded as short term.
12:36Understood.
12:37So, my last question, of course, with regard to the streamlining, it seems like from a
12:44streamlining perspective, it's been ironed out in a way in which maybe this structure
12:50will be sustainable for a longer period of time.
12:52Just one little anomaly, which in my view, they've probably not addressed.
12:57Please give us yours.
12:59With regard to LTCG, when LTCG on listed equities was exempted, STT was introduced.
13:08That hasn't been withdrawn in any fashion yet.
13:11Do you believe that that withdrawal is necessary, firstly, your view?
13:15And second, anything else you believe is a miss from at least a capital gain standpoint?
13:21Yeah, sorry, I was on mute.
13:29So your questions are very pertinent.
13:32STT was introduced with the express objective of substituting long term capital gains tax
13:39or other the exemption that was granted on listed equity shares at that particular point
13:45of time.
13:46That was the very objective of STT being introduced.
13:48Over a period of years, STT has really skyrocketed in terms of collections.
13:53So in the last maybe six, seven years from 2017-18 till today, STT collections have gone
14:00up dramatically from less than 12,000 crores.
14:03The projection for this year is much more, but the first three months itself have contributed
14:0916,000 crores.
14:11So that's the kind of increase.
14:12But I guess what the government seems to feel is that even thereafter, there is a discounted
14:19rate of long term capital gains tax, which is 10% now sought to be increased to 15.
14:25And therefore, it's okay to live with both.
14:27But what that effectively means is that when it comes to listed instruments, long term
14:34listed equity shares, they bear a 12.5% long term capital gains tax plus an STT.
14:41On the other hand, other long term capital gains get 12.5% without an STT.
14:48Now that seems to be a little incongruent.
14:50I'm not too sure this could have been intended.
14:53The idea was to reduce the long term capital gains tax rate on all other assets from 20
14:58to 12.5% because indexation is going away, which is well confined because if indexation
15:03is not there, you need a reduced rate from 20%.
15:06But what that has ended up doing is that on listed equity shares, which seems to be the
15:13instrument which the government wants to promote the most, wants to incentivize the
15:19most equity mutual funds, which it wants to incentivize the most retained units, the long
15:24term capital gains tax rate is the same 12.5%.
15:27But it additionally bears an STT obligation, which other assets, long term assets don't.
15:33So that's the anomaly.
15:35If you feel there is one, I do feel there is one, but I don't see the STT going away.
15:42It's just bringing in so much collection of revenue that I'm not sure the government
15:45would be keen to do away with it.
15:47Yeah, that's a fair point.
15:49And I think that covers all of the bases with regard to the capital gains tax and simplification.
15:57And thanks so much for simplifying it even further for us.
15:59Pranav, pleasure having you on the program as always.
16:02Pleasure.
16:03Thank you.
16:04And viewers, do stay tuned from Harsh and myself and the team that put the show together.
16:08Thank you so much for watching.
16:09We have more coming up over the course of the day.
16:12And this is NDTV Profit.