Hike in tax collected at source (TCS) on foreign remittances exceeding Rs 7 lakh a year was a big dampener for overseas-bound travellers and those investing abroad.
While the new tax regime introduced in 2020 remains the most discussed personal tax announcement, the focus on tech-enabled tax return-filing and faceless assessment initiatives have also made a significant impact. Income tax returns are being processed and refunds issued faster.
Effective tax liability has gone down under both the regimes over the years. Thanks to the tax rebate on incomes of up to Rs 5 lakh and Rs 7 lakh, respectively, under the old and new regimes, the tax outgo is now zero.
Hike in tax collected at source (TCS) from five percent to 20 percent on foreign remittances exceeding Rs 7 lakh a year – that came into effect in 2023-24 - was a big dampener for overseas-bound travellers and those investing abroad
Five hits
1. New tax regime – The new regime, introduced in 2020, offers lower tax rates in return for giving up various deductions and exemptions. Budget 2023 introduced rebate on taxable incomes of up to Rs 7 lakh (up from Rs 5 lakh), besides allowing Rs 50,000 standard deduction for salaried tax-payers, making it more attractive (see graphic).
2. Tax rebate under old tax regime – Tax outgo for those with incomes of up to Rs 5 lakh is nil; add various deductions and exemptions and actual ‘tax-free’ limit is even higher. For example, if a salaried tax-payer with an income of Rs 7 lakh claims tax deductions of Rs 1.5 lakh under section 80C, besides standard deduction of Rs 50,000, the tax outgo will be nil due to the tax rebate.
3. Faceless assessments and appeals – Manual income tax assessments and appeals have been replaced with faceless, that is, electronic or virtual interface. Taxpayers can respond to tax notices electronically through their registered e-filing accounts.
4. Introduction of pre-filed ITR form, AIS, Form 26AS – Chances of missing out on declaring some incomes and inviting tax notices are fewer as Annual Information Statement (AIS) relays information of financial transactions across the board.
5. Quicker return, refund process – Faster processing of tax returns and refunds have been key positives. As per a recent Confederation of Indian Industries’ (CII) report, over 53 percent of individuals polled said that it took less than a month to receive income tax refunds (see graphic).
Five misses
1. Long-term capital gains (LTCG) tax - Introduction of LTCG tax @ 10 percent on sale of listed equity shares on gains exceeding Rs 1 lakh a year in budget 2018-19. Until then, this had been tax exempt. So, if you bought equity shares for Rs 1 lakh and then sold them for Rs 3.5 lakh after 1.5 years (holding period exceeds 1 year), you would pay 10 percent tax on Rs 1.5 lakh (capital gain of Rs 2.5 lakh minus the Rs 1 lakh threshold).
2. No uniformity in capital gains taxation – Currently, capital gains taxation in India is complex and varies from asset to asset – not just in terms of the rate of taxation but also the period of holding. For example, long-term capital gains (holding period of 1 year) on listed equity shares are taxed at 10 percent whereas in case of property, long-term capital gains (holding period of over 2 years) are taxed at 20 percent with indexation benefit.
3. Non-equity funds face higher taxation – From 2023-24, any capital gain on sale of debt funds and other non-equity mutual funds (where not more than 35 percent is invested in equity shares of domestic companies) acquired on or after April 1, 2023 is taxed at the applicable slab rate, irrespective of the holding period. Indexation benefit, too, has been removed.
4. Hike in TCS rate – The TCS rate on overseas tour packages and foreign remittances under LRS (except for education and medical treatment) of over Rs 7 lakh per annum was hiked from 5 percent to 20 percent with effect from October 1, 2023.
5. No reduction in 30 percent maximum tax rate: The government has failed to bring corporates and individuals at par when it comes to maximum tax rates, though peak surcharge dropped from 37 percent to 25 percent.