The revised new tax regime offers a higher tax exemption, raises the threshold for tax rebate and reduces the surcharge for the super rich.
Revenue Secretary Sanjay Malhotra told ET, the government is confident that at least half of taxpayers will shift to the new income-tax regime that has been made more attractive in the latest budget.
“Taxpayers’ response (to the new scheme) was poor and that is why we have made it more attractive. We are confident that at least 50% of taxpayers should shift (to the new regime). And I am being conservative here,” Malhotra said.
CRISIL in a note said as per market estimates, less than one-fifth of tax payers are under the new tax regime. The new version of the new tax regime will result in 26% reduction in tax payout compared with the old version (assuming Rs 15.5 lakh annual income).
India’s Budget for the next fiscal year starting April 1 pushed for greater adoption of the new tax regime in a big way by reducing the number of tax slabs, increasing the basic exemption limit to Rs.3 lakh from Rs.2.5 lakh, raising the threshold for full tax rebate and lowering the surcharge for incomes above Rs.5 crore.
Those opting for the new tax regime can also claim the Rs.50,000 standard deduction. The threshold for rebate under Section 87A has been raised to Rs.7 lakh from Rs.5 lakh, which means a person earning Rs.7.5 lakh a year will not pay a rupee in tax, taking the standard deduction benefit into account.In her budget speech, Sitharaman said that the new tax regime will henceforth be the default option.
Finance Ministry data showed about one crore individuals in the Rs 5-7 lakh income range can gain from the government’s decision to increase the rebate level to Rs 7 lakh under the new tax regime.
Many of these individuals are unable to use the benefits available for investment in specified savings instruments, such as public provident fund or 5-year fixed deposits, increasing their tax liability, government sources told TOI.
“These individuals will not have to pay any tax, irrespective of the amount of deductions that they are able to claim due to the savings. We also need to factor in that savings increase as the income level goes up, as you have higher disposable income,” said a finance ministry official.
There are more than six crore taxpayers in India and now individuals with income above Rs 3 lakh, even if they do not have any liability, are also required to file returns. As of March 2022, close to 6.4 crore returns were filed by individuals.
However, while the push to the exemption-less regime is seen to be discourage savings, Malhotra said that taxation should not be the instrument to promote savings and there are other ways to do that.
“The new tax regime provides a level-playing field among the investible instruments instead of investing for taxsaving purposes,” CRISIL said.