Simplification of tax regimes is the focus of the budget: finance ministry officials

New Delhi: Simplification of direct and indirect tax regimes was the focus of the Union budget for FY25, senior finance ministry officials said on Friday.

The goal of the government was not to increase or reduce taxes, but to simplify the process of paying taxes for individuals and businesses, to promote ease of doing business in the country, revenue secretary Sanjay Malhotra said at a post-budget interaction organised by industry body Associated Chambers of Commerce and Industry of India (Assocham) in the national capital. The focus of the budget was simplification because the industry asked for the same, he added.

“The provisions introduced in the budget relating to direct taxes can be broadly categorized into simplification, standardisation and compliance. The purpose of tax administration is not penalty and prosecution but to provide comfort to the taxpayers,” said Ravi Agrawal, chairperson, CBDT, at the forum.

The CBDT chairperson also said more than 85 million income tax returns and about 7.2 million updated returns were filed last year, indicating an increased ease of compliance.

The Central Board of Indirect Taxes and Customs (CBIC) chairperson Sanjay Kumar Agarwal said the simplifications in the goods and services tax (GST) regime would increase revenue contribution and boost ease of doing business to promote growth and domestic manufacturing. 

‘Simplified taxation, rationalised rates can ensure globally competitive industries’

“The goal of the government is to make India a developed nation by 2047. Looking at the budget from this perspective, the indication is clear that we need simplified taxation and rationalised rates to ensure that our industries remain globally competitive,” he said.

The finance ministry has not decided whether its review of the Income Tax Act, as announced by finance minister Nirmala Sitharaman in her budget address earlier this week, would result in a new law or not, revenue secretary Malhotra said at the event.

The Income Tax Act will also be reviewed to streamline and smoothen the process of taxation, finance ministry officials at the event said. 

“The underlying thought here is that how do we rationalize and how do we make it simple for the taxpayer to actually navigate through the Act and to the extent possible, their need for taking the help or assistance of a professional may be minimized, at least for the common taxpayer,” said CBDT’s Agrawal, about the review.

In the Union budget, the central government made major changes to the capital gains tax, raising the long-term capital gains tax (LTCG) from 10% to 12.5%, and the short-term capital gains (STCG) tax from 15% to 20%. Both these taxes are applicable for equity and equity-backed mutual funds. 

“It is a simplification measure and not a tax increasing, a revenue increasing, or revenue augmenting measure. The revenue increase is marginal at 10% to 12.5% and we will all benefit by avoiding the burden of complexity,” Malhotra said.

One of the key amendments to the government’s indirect tax regime is the addition of section 11A to the GST Act, which allows the government to waive the recovery of GST not levied due to generally prevailent practices. 

“The proposed insertion of Section 11A in GST Act is aimed at removing ambiguities and must be invoked only in exceptional cases and not resorted to as the norm,” revenue secretary Malhotra said.

Growing GST collections indicate economic growth, said CBIC chairperson Sanjay Kumar Agrawal. “GST revenue growth of the last financial year has outperformed GDP growth, reflecting the inherent efficiencies in the GST tax regime and improved compliance levels,” he said.

“The comprehensive review of the rate structure (of the Goods and Services Tax) to be conducted over the next six months will seek to rationalise and simplify the rate structure to facilitate ease of trade, address duty inversions and reduce disputes,” he added.