Expectations for tax sops are working excessive forward of the Union Price range in February as it could be the final full finances of this authorities earlier than the overall elections in 2024.

Simplification of the non-public tax regime is without doubt one of the key expectations. At the moment, particular person taxpayers have the choice to decide on between two tax regimes—the previous tax regime that makes use of tax slabs of 5%, 20% and 30% and permits taxpayers to avail of all eligible exemptions and deductions, and the concessional or new tax regime, launched from monetary 12 months 2020-21, that provides decreased tax slabs however by forgoing sure exemptions and deductions. The target of introducing the brand new regime was to finally transfer in the direction of a tax regime of low/average tax price with out exemptions and deductions to make compliance easier for the taxpayers and scale back the executive burden of the Revenue-tax authorities and employers.

Graphic: Mint

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Graphic: Mint

It was estimated that annual income of 40,000 crore will likely be foregone because of the new regime.

An essential level to notice is that whereas below the previous tax regime, the essential quantity not chargeable to tax is elevated to 3 lakh for resident senior residents aged 60 or extra however lower than 80 and 5 lakh for these above 80, there isn’t a such relaxed threshold obtainable for resident senior residents below the brand new regime.

Based mostly on press stories, it seems that the brand new tax regime isn’t very fashionable and only a few particular person taxpayers have opted for it up to now two years. Most salaried taxpayers are paying lease or repaying housing mortgage, contributing in the direction of provident fund (PF) or NPS, paying medical insurance coverage premiums, and have curiosity revenue from the financial savings checking account. For such taxpayers, in the event that they had been to judge the brand new tax regime, they may discover that the tax payable is increased even with decrease tax charges below it, as in comparison with the previous tax regime. Accordingly, such taxpayers would go for the previous tax regime as it’s helpful for them.

Thus, there’s a have to make modifications to the concessional tax regime to make it simpler and engaging for particular person taxpayers. The federal government might suggest following modifications to make it engaging:

a. New slab charges and elevated thresholds (see desk)

b. Retain normal deduction of 50,000

c. Present the good thing about sections 24(b), 80C/80CCC/CCD/D deduction of as much as 2.5 lakh, however restricted to contribution in the direction of Provident Fund (together with PPF), qualifying life insurance coverage merchandise, curiosity on housing mortgage, contribution in the direction of NPS and medical insurance coverage. The introduction of the above deductions below the brand new regime just for a particular set of advantages and for a restricted time to cowl requirements might make the CTR extra engaging because the people would be capable of declare tax advantages for investments/bills that are mandatory and incidental. Additionally, the price of offering these tax deductions wouldn’t be vital for the federal government however will certainly encourage extra taxpayers to maneuver to the brand new regime.

Sonu Iyer is tax companion and other people advisory companies chief at EY India. Siddharth Deb, director – folks advisory companies chief, EY India, contributed to this text.

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