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Pallavi: Welcome to EY India Insights Podcast. I am Pallavi, your host for today and we are delighted to present another episode of the ongoing Interim Budget 2024 series. Tune in for insights that cover the macroeconomic landscape and the direct impact of the interim budget on individuals, taxpayers, and businesses.

In the context of Interim Budget 2024, highlighted by the Honorable Finance Minister Nirmala Sitharaman, the focus is on four key aspects, Garib, Mahilayen, Yuva, and Annadata, which stands as a testament to its significance for our larger economy. Today, we are joined by Sonu Iyer, Partner, People Advisory Services (Tax), EY India. With over 27 years of experience, she advocates reforms and regularly contributes to events on mobility, tax, and HR consulting.

Sonu, thank you for joining us and welcome to our podcast.

Sonu: Many thanks, Pallavi. Pleasure to be on this podcast with you.

Pallavi: Both individual and corporate taxpayers were expecting some relief in tax rates, but the Finance Minister has adhered to the fact that it is a vote on account. She did extend certain tax benefits to start-ups and investments made by sovereign wealth and pension funds, and tax exemptions on certain income of some IFSC units till 31 March 2025. Do you think the desired relief will be provided once the full budget is presented post elections?

Sonu: It is hard to tell. This is for the government to decide what relief they will give and what they will not. This was a vote on account budget despite expectations galore because it was being presented in the backdrop of elections that will come up in April/May. Yet the Finance Minister stuck to the vote on account budget and there was no tax cut, etc., as was being expected by common taxpayers. Whether the full budget of July 2024 to be presented by the newly elected government will provide relief or not, is something that we will have to wait and watch.
From a personal tax standpoint, I think it is more about making the new tax regime attractive, which is something that may happen when the full budget is presented in July 2024.

Pallavi: To further improve services to taxpayers, the Finance Minister proposed to withdraw long pending tax disputes or non-reconciled tax demands of up to INR25,000 till FY10 and up to INR10,000 from FY11 to FY15. How do you see this? Will taxpayers look forward to more such reliefs in the future?

Sonu: It is a significant step towards addressing dispute resolution. Imagine, you had these multiple cases that were stuck, with many of them going back to 1962, as the Finance Minister alluded to in her speech. Many of these taxpayers could not get their refunds of subsequent years because they had outstanding tax demands. Now, this one time cleanup, I think, will free up a lot of time and a lot of unnecessary litigation will go away. So, it is a significant measure and dispute resolution has been on the government's agenda of tax reforms. We have seen multiple interventions such as Advanced Pricing Agreements (APAs), which came up for transfer pricing, and the Bureau of Advanced Ruling that was set up.

Dispute resolution clearly is a priority, and we will see many more such mechanisms set up in this roadmap for reducing tax disputes.

Pallavi: Thank you, Sonu. India's direct tax collections have more than trebled in the last 10 years. What steps can the government take to further enhance this? Also, what are the areas of improvement in taxpayer services?

Sonu: There are two different parts to it. What can the government do to increase its body of tax – as the Finance Minister noted, the tax collections have trebled? I think they have taken some excellent interventions, using the triad of Tax Deducted at Source (TDS), Tax Collected at Source (TCS)  and Goods & Services Tax (GST) to be able to really ramp up the tax collections. That is what the statistics are also suggesting. We will see further enforcement and tightening of various laws to ensure much more formalization of economy, much more formalization of transactions that are undertaken by taxpayers, so that we are able to under bring in and step up further the tax collection.

In terms of taxpayer services, it is like asking for the moon. The taxpayer will always want ease of compliance, no disputes, clarity of tax provisions. So, work can happen on multiple facets. And one such step in this budget, which the Finance Minister has announced, is dispute resolution for taxpayers making their lives simpler and not letting them get stuck in fighting long battles for petty tax demands.

The other is in terms of how appeals and assessments are settled. We have a lot of pending appeals at the Commissioner of Appeals level that need to be settled. So, maybe interventions along the way to expedite disposal of these appeals would be helpful from a tax bill standpoint.

Pallavi: Thank you, Sonu. Given the differences between the two tax regimes, are there ways in which the new tax regime can be made more attractive?

Sonu: If you look at the genesis of the new tax regime, the government ventured on to the new tax regime by shaving off all deductions and bringing in lower tax rates. There were not many takers in the first version. In the subsequent version, the government has tried to make the new tax regime attractive by widening the slabs, lowering the tax rates, and bringing in standard deduction, also to make it more attractive and comparable with the old tax regime. However, we still have to get the data for how many people would have moved to the new tax regime after it was made the default tax regime or in the old tax regime. We will have to wait and watch for that, but I think the path towards new tax regime is fairly clear.

The government will do its best by measures of enforcement to ensure that deductions that are claimed in the old tax regime, due to which people want to continue with the old tax regime, are genuinely claimed. And we have seen the spate of notices through which the government is educating employers and employees to ensure that housing rent allowance (HRA) deduction, which most taxpayers claim, is claimed accurately.

What will happen to make the new tax regime more popular is probably ensuring that the old tax regime gets less attractive for taxpayers, and that is when we will see bulk of taxpayers who continue to be on the old tax regime, move to the new tax regime.

In terms of other ways to make the new tax regime more attractive, if they facilitate and enable tax credits to be taken in an easy manner, that would make it much more attractive versus the old tax regime where you have cumbersome documentation to claim tax credits.

The other way the government could also think of streamlining and making the new tax regime more attractive is to allow the offset of TCS, which is currently collected on remittances sent overseas to be offset against tax due at the withholding stage itself. That will make the new tax regime much more attractive.

So, basically make the old tax regime less attractive and make it more beneficial for the taxpayer to be under the new tax regime.

Pallavi: Thank you, Sonu, for joining us today and sharing such valuable inputs to all our listeners. It gives us a brief idea of the new interim budget 2024.

Sonu: Many thanks, Pallavi. My pleasure to be with you on this podcast.

Pallavi: On that note, we come to the end of this episode. Thank you to all our listeners for joining us in this insightful discussion. Stay tuned for the next podcast. Until then, if you would like us to cover any specific topic for the discussion, please feel free to share it with us on our website or markets.eyindia@in.ey.com. From all of us at EY India, thanks for tuning in and goodbye.

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