Mohan, President of Society of Auditors discusses about the Indian taxation, economic growth with reference to common man.
Taxation, Growth & the Common Man
By Ramesh Sundaram, Editor in Chief
In an exclusive interview with Ramesh Sundaram, Editor-in-Chief of PreSense, S. Mohan, the newly elected President of the 90-year-old ‘Society of Auditors,’ an institution with over 2,000 practising Chartered Accountants, shares his insights on India's economic growth. He highlights gaps in how this growth benefits the common man, especially the middle class and senior citizens. Mohan also discusses the 2024 Budget, recent changes in capital gains tax, and the ongoing confusion surrounding GST implementation. Additionally, he advocates tax reforms and improved welfare measures for the elderly. S Mohan is a practising Chartered Accountant for nearly 50 years.
Excerpts
from the interview:
History of Society of Auditors
Can you describe the history and journey of the Society of Auditors, including its objectives and achievements?
The
Society of Auditors in Chennai is India’s oldest professional body for
accountants and attesters. It predates nearly by a generation even the
Institute of Chartered Accountants of India (ICAI). Established in 1932, it
played a pivotal role in nurturing the accounting profession in southern India
and the country as a whole. Many leading figures in the Indian accounting
profession were instrumental in forming the Society and ensuring its steady
growth. In fact, the Society’s influence extended beyond its immediate work — it
was a precursor and trendsetter for similar organisations to emerge across
India.
Notably,
the Society was also a persuasive force behind establishing the ICAI under an
Act of Parliament in 1949. This achievement remains one of the Society’s
greatest contributions to the profession.
What is your assessment of the current Indian economy?
Are the benefits of economic growth reaching the common man?
While
the Indian economy is robust and growing steadily, I believe the benefits have
not fully reached the common man, particularly those at the lower end of the
socio-economic spectrum. A significant portion of the population still lives
below the poverty line, and the focus of government policies should shift more
towards uplifting these individuals. While the growth numbers might look good
on paper, they are not necessarily improving the lives of a large population
segment, especially those most vulnerable.
Budget 2024
What are your thoughts on the 2024 Budget? What impact
does it have on taxpayers, particularly the middle class?
There
is a general sense of disappointment within the middle class regarding the 2024
Budget, particularly because many hoped the basic exemption limit for income
tax would be raised, but that did not happen. Middle-class individuals earning
below ₹12 lakh annually contribute a significant portion of their income to direct
and indirect taxes. These taxpayers, in my view, deserve more consideration,
especially in the form of tax relief.
In
addition, changes to capital gains tax calculations have caused concern.
Previously, individuals selling properties could benefit from indexation, which
accounted for inflation in property prices. However, from July 2024 onwards,
these benefits will no longer apply, meaning individuals will face higher tax
burdens on property sales. Although the long-term capital gains tax rate has
been reduced from 20% to 12.5%, the removal of indexation means individuals
selling older properties will still pay more in taxes. Furthermore, two years
ago, the government placed a cap on reinvesting capital gains into new
properties, adding further limitations for taxpayers. Overall, these changes
represent a retrograde step.
New Income tax Scheme
There is a lot of confusion among taxpayers, particularly
the middle class, regarding the new income tax scheme. Has it benefited them?
The
new tax regime was introduced two years ago as an alternative for individual
taxpayers, and it has now become the default scheme. This regime offers a
higher exemption slab of up to ₹7.50 lakh, compared to ₹2.50 lakh under the old
scheme. However, the main difference is that taxpayers in the new regime cannot
claim deductions for savings, such as life insurance premiums or contributions
to the provident fund. This results in a lower tax rate up to a certain
threshold, but it discourages long-term savings, especially among younger
taxpayers. Under the old scheme, a deduction of up to ₹1.5 lakh was allowed,
which encouraged saving for the future. The removal of these incentives in the
new regime may hurt long-term financial security.
Another major concern is the loss of
deductions for charitable donations, which were previously allowed under the
old scheme. Public charitable trusts have already begun to feel the impact as
donations have started to dry up. In my view, this creates a societal
imbalance as the support for charitable institutions that provide vital
services is diminished.
As
for the number of middle-class taxpayers, while the government has not provided
specific figures, we do know that individual taxpayers contributed more to the
tax pool than corporations in 2022-23. Most individual taxpayers, it is fair to
assume, are from the middle class.
On GST
Much discussion has been on the Goods and Services Tax
(GST). How has the country benefitted from it since its introduction in 2017?
The
intention behind GST was good — unifying India’s indirect tax structure under a
single umbrella. However, its implementation has left much to be desired. GST's
complexity has hit small and medium-sized enterprises (SMEs) hardest. There is
still confusion among taxpayers, even among well-educated individuals,
regarding the applicable tax rates for various commodities. The government issues notifications almost daily, making
it difficult for even experienced chartered accountants to keep up. This leads
to non-compliance, not due to intentional evasion, but because taxpayers are
overwhelmed by the constantly changing rules.
The
digitalisation of tax filings and the complexity of online forms have also
added to taxpayers’ frustrations. The system was introduced hastily, and even
after seven years, much of the confusion has yet to be resolved.
The Hotel Owners' Association in Coimbatore recently
raised concerns about GST on food items. What is your perspective on this
issue?
As
I mentioned earlier, confusion regarding GST rates is widespread, and the
concerns raised by the Hotel Owners' Association are valid. In the hospitality
sector, different items are taxed at different rates, and additional
distinctions are made based on whether the restaurant is air-conditioned or
not. Most countries with a GST system usually have one or two standard rates.
In India, however, the rates range from 0% to 28%, which is too complex. This
creates a significant compliance burden and leads to unintentional
non-compliance by many taxpayers.
What steps do you suggest to rectify the anomalies in
GST?
The
government should consider setting up a committee composed of taxpayers,
chartered accountants, and tax advocates to study and rectify the anomalies in
the GST system. The government must change its approach of viewing all
taxpayers as potential defaulters. Based on mutual respect, a more
collaborative relationship between tax collectors and taxpayers would improve
compliance and reduce grievances.
Merger of Public Sector Banks
Has the merger of public sector banks achieved its
objectives?
Through
mergers, India reduced the number of public sector banks from 27 to 11 to
create stronger, more robust institutions. For example, the State Bank of India
merged with its associate banks, significantly boosting its strength and size.
This move was necessary, as Indian banks were fragmented, and consolidation has
given them more financial muscle.
However,
the mergers also brought challenges. Each bank had its legacy and culture, and
merging banks from different regions caused cultural clashes. Customers and
staff of a particular bank may find it difficult to adapt to the bank's
practices with which it merged. Overstaffing in one bank could also be imposed
on another, creating inefficiencies. These issues are likely to be temporary,
but they have disrupted services in the short term.
Taxation on Medical Insurance
Senior citizens face challenges with taxation and GST on
medical insurance. What improvements can be made to their welfare?
Senior
citizens deserve better care, as they have contributed to the country in their
working years. While the government has provided some tax relief to seniors,
more can be done. For example, income up to ₹10 lakh should be exempt from tax
for senior citizens, ensuring they are not unduly burdened in their retirement
years.
GST on health insurance premiums is
also a significant concern, as it adds to the financial strain on seniors.
However, there is hope, as a working group of ministers has been set up to
study these issues and recommend solutions. I am optimistic that
much-needed relief will be provided soon.
Additionally, many seniors, especially those who worked in the private sector or ran small businesses, do not receive pensions like their counterparts in government roles. These individuals need more support. A recent positive step in this regard is the government’s announcement of medical insurance for all citizens over 70, with coverage up to ₹5 lakh annually, regardless of income. This is a welcome relief for seniors who often struggle to get adequate insurance.
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