The Union Budget this year came with welcome changes for different categories of taxpayers. Unlike the previous years, the Hon’ble Finance Minister doled out some benefits for literally every cross-section of people – women and their daughters, senior citizens, professionals, high net-worth individual and the public. Introduction of standard deduction in New Personal Tax Regime (“NPTR”), changes in the basic exemption limit, changes in the income tax slab rates, reduction of the peak marginal tax rate, increase in gross receipts limits for presumptive income for professionals, etc. are all strong positives and a hit with the public. So, there is a strong ‘feel good’ factor all around.
However, several of these benefits came with an important pre-condition attached – namely participation in the New Personal Tax Regime. And there are some changes which are bound to leave some sections deeply unhappy. So, what are some of the key elements which have been left out, contrary to our expectations? Let us take a closer look at three big misses of this Budget.
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New Personal Tax Regime (NPTR): Most of the beneficial tax provisions such as higher basic exemption limit from Rs. 2.5 lakhs to 3 lakhs, rationalization of tax slabs, bringing down the peak surcharge from 37% to 25%, income limit for 100% tax rebate from Rs. 5 lacs to Rs. 7 lacs are all tagged to NPTR. So far, most people continue to opt for the old tax regime as popular exemptions and deductions like HRA, LTA, Chapter VIA deductions (covering PF, PPF, insurance premia, medical insurance, NPS contributions, etc.) as these are important elements of spend for the common man.
While the Government wants to simplify the tax regime and continue with only NPTR in future, the disallowance of exemptions and deductions under this regime may not help achieve this objective in a hurry. Further, knowing that largely the low- and middle-income group puts money in different options to save and invest, taking away deductions and exemptions under NPTR will discourage them. Just like the FM brought in standard deduction into the NPTR for salaried people, introducing these existing deductions into the NPTR along with a sunset clause might have been a more fruitful approach.

Capital gains (CG) tax: The provisions related to CG were in urgent need of simplification. Factors like different category of assets, period of holding, multiple tax rates, indexation/ deeming/ grandfathering provisions, criteria for exemptions, reporting requirements etc. play a pivotal role in computing the correct income and taxes but are very difficult to comprehend. Rationalization and simplification of this gamut of provisions could have helped the taxpayers compute the resultant income and taxes correctly and easily.
Procedural hassles: As we all know, the Indian Government has been taking several steps to make tax compliance easier for taxpayers. Mandatory online filing, linking of Aadhaar and PAN, faceless and online assessment procedures, linking of bank accounts with PAN for faster processing of refunds, easy access to personal data via Form 26AS, AIS, etc. – all these measures have resulted in a remarkable reduction in average processing period of returns from 93 to 16 days! As the FM mentioned, 45% of the returns get processed within 24 hours these days. This is no mean feat and really makes a difference to taxpayers.

Now is the time to forge ahead towards the next level of change. There are practical challenges faced by the taxpayers while complying with all the requirements. The set algorithms in the department’s technology and software do not adapt to different and unique situations which the taxpayers might have during return filing or other compliance procedures. For example, Tax Residency Certificate (TRC) is a must to avail the tax treaty relief but in a situation where the TRC is not issued by the foreign jurisdiction, the taxpayers face genuine hardship in claiming this relief. This goes against the spirit of double taxation avoidance agreements, where India is a signatory to the agreed protocol with another country.
Another situation is where e-verification of Form 67 for an individual who has already left India and does not have access to the available modes of e-verification. It is impossible for such individual to follow the online steps required by the software. Again, where the overseas tax return is not available before the due date of filing India income tax return/ revised return owing to the timing difference between the two countries, the taxpayers are not able to claim foreign tax credit, which rightfully belongs to them. The Government needs to look into these with urgency.
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This year’s proposals are clearly aimed towards simplification and reduction of administrative time of taxpayers, employers as well as the tax authorities on compliance procedures. Some of the above points would add to this objective. We hope this is an early enough call-out to the Government to take the necessary steps in this regard.
(Ishita Sengupta is Partner and India Leader at Vialto Partners. Manavi Gupta, Associate Director and Sagar Dhamija, Manager also contributed to the article. Views expressed are personal)