Synopsis
The new optional tax regime, which stipulates that no tax will be assessed on individuals with yearly incomes up to Rs. 7 lakh, has been modified by the Budget. The decision was perceived as an attempt to convince the salaried class to transition to the new tax system, which offers no exemptions for investments, by allowing taxpayers to claim a standard deduction of Rs. 50,000 under the new system.
Revenue Secretary Sanjay Malhotra stated on Thursday, a day after the Budget’s introduction of a revised personal income tax regime, that the government eventually wants to move to a straightforward, exemption-free tax structure with lower rates. According to a Revenue Department estimate, if a person earns Rs 15 lakh per year, they will need to deduct at least Rs 3.75 lakh from their income under the current tax system; otherwise, the new, improved tax system with lower rates envisaged in 2023–2024 will be more advantageous.
Malhotra stated in an interview with PTI that the government has no set deadline for making the new system mandatory for taxpayers.
Malhotra stated, “We would prefer to go towards a lower tax rate, which is straightforward and without tax exemptions.
The new optional tax regime, which stipulates that no tax will be assessed on individuals with yearly incomes up to Rs. 7 lakh, has been modified by the Budget. The decision was perceived as an attempt to convince the salaried class to transition to the new tax system, which offers no exemptions for investments, by allowing taxpayers to claim a standard deduction of Rs. 50,000 under the new system.
After accounting for the standard deduction, Malhotra said that under the new system, salary earners with income up to Rs 7.5 lakh will not be subject to income tax.
Previously, only taxpayers under the previous administration were eligible for this deduction.
The Budget said that the new tax regime will now be the “default option,” which means that taxpayers will now have to choose the old tax system when completing their tax returns. The Budget did not provide any relief to people under the old tax regime.
To make the new system, which was first implemented in 2020–21, more appealing to taxpayers, the Budget has increased the exemption limit, adjusted the tax rates, and extended the basic deduction.
For income up to Rs 3 lakh, no tax would be assessed under the newly revised tax system. Income between Rs. 3-6 lakh would be taxed at a rate of 5%; Rs. 6-9 lakh at a rate of 10%; Rs. 9-12 lakh at a rate of 15%; Rs. 12-15 lakh at a rate of 20%; and Rs. 15 lakh and above at a rate of 30%.
According to the Revenue Department’s analysis, people with incomes of Rs 10 lakh will need to make investments eligible for I-T deductions of at least Rs 2,62,500 in order to bring their tax obligations down to the same level as someone who is subject to the new tax system.
According to Revenue Secretary Sanjay Malhotra, the country’s savings will not decrease as a result of the transition to the new, voluntary income tax regime.
Malhotra stated on February 3 at a post-Budget industry interaction that “the savings through tax exemptions is actually a very small portion of the total savings of our country, which is about Rs 25 lakh crore for households, of which savings through tax (saving) instruments are only Rs 4 lakh crore.”
There has been reluctance to switch to the new system since it was implemented three years ago because it lacks exemptions and deductions. However, the 2023 Union Budget, which was unveiled on February 1, made various attempts to make it more alluring, including lowering tax rates and increasing simplicity.
The objective of Budget 2023’s incentives is to encourage people to switch in large numbers to the new tax system, which has been made the default one.
