Over the past few years, two big shifts have changed how Indians plan their taxes: the introduction of the new tax regime and the changes in capital gains taxation. At the Mint Money Festival, chartered accountant Prakash Hegde of Acer Tax & Corporate Services broke down what these changes mean for small taxpayers and why simplification remains elusive.
Old vs new tax regime
For most salaried taxpayers, the new regime is now the straightforward choice, according to Hegde.
“Unless your exemptions and deductions exceed roughly ₹7.75 lakh annually, the new regime makes far more sense,” he explained.
He also highlighted additional perks of a higher standard deduction of ₹75,000 (versus ₹50,000 in the old regime), a more generous National Pension System contribution exemption and surcharge rates of 25% instead of 37% for ultra-high earners with incomes above ₹5 crore.
While some continue with the old regime to maximise deductions like house rent allowance and investments under Section 80C, the simplicity of the new regime often outweighs the effort of tax-saving investments.
Capital gains still a knotty problem
Capital gains tax rules on most assets were changed starting 23 July 2024. A uniform long-term capital gains rate of 12.5% without indexation was introduced for most capital assets, including equity and real estate.
The removal of inflation adjustment (indexation) on real estate that previously allowed taxpayers to inflate their cost of acquisition or improvement, thereby reducing taxable gains, was the biggest change. However, to soften the blow, the government introduced a grandfathering provision for immovable property (land or building) bought before 23 July 2024, allowing taxpayers to choose between the lower of the new 12.5% rate without indexation and the older 20% rate with indexation.
But this comes with caveats and dual calculations.
“You cannot set off the losses that may arise from indexed calculation. Moreover, the full unindexed gains are still added to the total income, which can push your net income above surcharge levels,” Hegde said.
Despite reforms, real estate continues to enjoy significant tax advantages. Sections 54 and 54F allow reinvestment benefits, loan interest can be deducted, and let-out property generates further write-offs.
“Even with recent changes, property continues to offer tax leverage unavailable to equities or bonds,” Hegde noted.
Employee vs consultant: a risky switch
Another key tax matter discussed was how it has lately become a trend for salaried professionals to consider shifting from employee status to consultants to lower taxes. But Hegde urged caution. Big companies seldom allow this, and authorities scrutinise such arrangements.
“If you continue with the same roles and responsibilities under a consultant label, tax officers may still treat you as an employee,” he explained.
Besides, opting for a presumptive scheme in such cases is risky. For professionals in non-specified fields, presumptive taxation rules may seem attractive, but declaring only 6% of gross receipts can raise red flags.
“Litigation risks grow if reported income is 6% of the turnover, but visible lifestyle or investments are higher than the income reported,” Hegde explained.
This switch is not a simple tax hack, and each case must be judged carefully, he added.
Complexity in compliance
The audience’s questions highlighted another theme: the sheer difficulty of tax compliance. From property valuations based on guidance values to confusion around capital gains, even basic calculations often require professional help.
“India’s tax code carries colonial-era complexity. Even chartered accountants need to check multiple provisions before giving advice. Unless simplification happens, taxpayers will remain dependent on experts,” Hegde concluded, adding that the new IT Act has also failed to ease complexities.
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