With an aim to make it more attractive for individual income taxpayers, the Centre is working to improve the two-year-old exceptions free income tax regime by providing lower tax rates, after the new system failed to gain traction.
Further, the finance ministry is likely to terminate the old personal income tax regime, which offers several deductions and benefits. Experts are of the view that the government’s endeavour is to simplify the income tax law and cut litigation, which is seen as complex amid multiple deductions and benefits available to taxpayers.
Worth mentioning here is that the Union Budget 2020-21 unveiled a new tax regime, and individual taxpayers were offered the choice to opt for either the old regime with several deductions and exemptions or the new tax regime that gave lower tax rates without exemptions and deductions.
“We have not seen much traction for the new personal income tax regime without exemptions so far… Those already taking benefits of insurance or house rent would not like to opt for a regime that does not offer any incentive. There is a need to sweeten the new income tax regime to find takers,” an unnamed official told Mint on the condition of anonymity.
Tax experts believe that if the rates come down in the new tax regime then it would make the new regime more attractive. In September 2019, the finance ministry rolled out a similar tax regime for corporate taxpayers by considerably lowering rates and removing exemptions.
The financial daily quoted the official as saying that there should be only one personal income tax scheme. “We will need to see if we need to lower the tax rates or rework the slabs to make it attractive … People who make more money should pay more tax; those who make less money should pay less,” he added.
As per the new tax regime for individual taxpayers announced on February 1, 2020, people with an annual income of up to Rs 2.5 lakh is exempt, for income between Rs 2.5 lakh to 5 lakh, the tax slab is 5 per cent.
Further, individual taxpayers with an income of Rs 5 lakh to Rs 7.5 lakh have to pay a lower tax rate of 10 per cent; between Rs 7.5 lakh and Rs 10 lakh 15 per cent; in range of Rs 10 lakh to 12.5 lakh 20 per cent; in bracket of Rs 12.5 lakh to 15 lakh 25 per cent; and more than Rs 15 lakh 30 per cent.
The old tax regime, however, allows the taxpayer to continue with existing tax exemptions, including House Rent Allowance (HRA), Leave Travel Allowance (LTA) and deductions under different sections of the Income-tax Act, 1961.
Source: Times Now