tax rates: Growing shift to promote people to go to new tax regime: Hemal Zobalia, Deloitte India

“To me, in terms of the tax rates on cap gains, in fact, if you go back in a year or two, it was expected that they will bring in rationalisation. To be honest, I was just checking in other countries also, you do not have so many multiple rates across that,” says Hemal Zobalia, Partner, Deloitte India.

So there is one headline number, short-term and long-term, and then there is a surcharge on top of that. What would be the effective tax rate now for short-term and for long-term?
Hemal Zobalia: So, for long-term now, effectively it is 12.5 that we talked about. Plus, the question will also be that they have hiked up the basic exemption from 1 lakh to 1.25 lakh. For short-term, for financial 20%. But otherwise, you will fall under the category of the normal rate, which can go up to almost to 39% depending on where you are, so that is the quick headline. Of course, we will have to see the fine print as it comes across, to see if they have done further simplification beyond what the FM has mentioned in the speech.

What is the big headline according to you?
Hemal Zobalia: To me, in terms of the tax rates on cap gains, in fact, if you go back in a year or two, it was expected that they will bring in rationalisation. To be honest, I was just checking in other countries also, you do not have so many multiple rates across that.

So, people were quivering. Probably from a timing perspective, it was thought prudent that right now is a good time to do that, as distinct from any other time. So, that is what my take is that probably they saw that this is the right time to kind of do the rationalisation.

In some cases, they completely exempt capital gains on considering as something that gives impetus to growth. But today, if you are in FM’s position, you need to raise revenues from somewhere. If you are going to give push to infrastructure, to R&D, I guess this was an area where she felt that she can raise more revenues for. Clarify on the point that Nilesh was mentioning, taxation on the foreign companies, if you have the nitty-gritties with you.
Hemal Zobalia: So, what is happening is that today, you have Indian companies. Indian companies are taxed, effectively if it is a new manufacturer, it is around 25% or it can go up to 34%. Now, overseas companies operating, let us say, for example, there are banks which operate by way of branches. Now, they had been taxed at 42%. Now, that has gone down. So, if you see foreign banks or foreign airlines or shipping companies, those because they operate as foreign companies in India and the logic being that they were taxed at a higher rate considering that you would pay corporate tax and then normally you would pay dividend, so whatever is that additional tax rate was coming to around 42%. So, that is how the maths was. But they are probably making more attractive for even foreign companies to operate.I know we are obsessing about the cap gains. But other than that, other than equity markets, what are the other taxation changes which you can read through in the fine print?
Hemal Zobalia: So, I see a tremendous focus on simplification. So, whether you look at it in form of unveiling the new Direct Tax Act which the FM is saying over six months or she spoke about the GST, inverted duty rationalisation.
She spoke about TDS rationalisation, charitable trust. So, I think the idea is about ease of doing business, make it a more simpler part of it. The other part is about on expected lines, we did discuss before the budget that we expect vivad se vishwas scheme to get rid of some of the litigation, I think she has announced that is a welcome move by a lot of corporates.

Leaving more money in the hands of the individual is one of the things that was also on expected lines, the standard deduction to go.

There has been a growing shift to promote people to go to the new tax regime. What I did like, something that stand out is this entire employee, employment related incentives.

So, the PM scheme of the new joiners, whoever joins in the pension provident fund, you will be incentive. So, what is announced is any first timers registered with EPFO, you get one month’s salary of 15,000, I think that is a big sum, plus you get support to the employees of another 3,000 per month for two years, that is a big chunk.

And what I think this will do is, you will get a lot of credible data of new employment generated. If you go back, there has always been an issue that okay, how much employment is generated, you have relied on EPFO. But by giving these incentives, it will promote a lot of employment and I think you will get a lot of more credible data that cannot be refuted as such.