NEW DELHI: In a major relief to the high net worth individuals (HNIs), the finance ministry relaxed the maximum surcharge to 25% from 37%, reducing the maximum income tax rate to 39% from 43% under the new tax regime. In an interaction with this newspaper, Sanjay Malhotra, the Revenue Secretary of India, said the flight of HNIs was one of the major reasons behind lowering the tax rate.
Here are excerpts from the interview:
What prompted the government to lower the highest surcharge from 37% to 25% at this point in time? Is it because a lot of HNIs moved out of the country?
Higher taxation has been reduced because lower taxes help in better compliance, generating more revenue and preventing the flight of rich people to countries with less taxation. We have had good buoyancy, good revenue collection, and in any case, it was an interim measure. Surcharges are not meant to be forever. Although 10% has been there for a very long time. High tax rates lead to evasion, flight of people and capital. That’s why it was an interim measure and it was removed.
What was the rationale behind keeping the threshold of insurance premium up to Rs 5 lakh per annum for claiming exemption on proceeds of life insurance policies when the threshold is Rs 2.5 lakh per annum in the case of ULIPs?
ULIP is a smaller proportion of the total insurance market. It’s only 10% in terms of value. That’s why we wanted to keep a higher limit for insurance plans other than ULIP. This takes care of the fact that people can buy a policy with a life cover of Rs 1 crore, and after Including ULIPs, the total cover becomes Rs 1.5 crore. So, we thought for the middle class, this is a good enough amount of insurance cover to be given to them.
For how long will the Government continue levying windfall gain taxes?
As long as the commodity prices are high and people make abnormal profits, we will continue with the windfall gain taxes. We had recently reduced the tax rate on some items, like on petrol, currently, it is zero.
Given the current scenario of slowdown, how sanguine are you about meeting the revenue target of 10.5% in FY24?
We have set a realistic target for FY24. This is in line with GDP growth and on the back of reduced personal income tax rates. We will make all the efforts to achieve it. Tax revenue is primarily a function of GDP and per capita income. And it’s a function of rate collection and efficiency. So, we are expecting a buoyancy of 1.
Are you happy with the kind of tax base that you achieved since the GST was implemented in 2016? What more measures will you take to plug the loopholes and expand the tax base?
Our tax base has grown from 60 lakh to 140 lakh in over five and half years. We have more than doubled, so that’s a good achievement. But there is always a scope for more and we will keep working to enhance and deepen the tax base. Going forward, we will be undertaking mostly technology-related measures to widen the tax base, so that revenue leakages can be avoided. We will make the systems more automated so that people report their sales and don’t evade taxes. The goods that people claim to have bought and pay taxes on them and they are not able to claim, unless taxes have actually been paid on those goods. So, we are trying to cut bogus input tax credit (ITC) claims.