Personal Taxes

Authorities is contemplating new personal tax charges, stimulus possible

In the run-up to the upcoming budget, the Union Treasury has conducted a review of the new personal income tax regime introduced last year due to little interest from taxpayers. The Treasury is likely to offer some incentives for household income tax beneficiaries to opt for the new tax plate.

Finance Minister Nirmala Sitharaman had announced the new tax plate in Budget 2021 to simplify the system of direct taxation for individual taxpayers. The new panels – with lower taxes – were offered to taxpayers willing to forego certain deductions and exemptions.

Under the new rule, tax on income between 5 lakh and 7 pounds sterling has been reduced to 10%. 5 lakh per year from 20% in the old tax system. Income tax between 7.5 lakh and 10 lakh was reduced to 15% from 20% in the old record.

A reduced tax of 20% was levied on income between 10 lakh and 12.5 lakh and 25% on income between 12.5 lakh and 15 lakh, versus 30% on income between 10 lakh and 15 lakh in the old record. Also in the new plate the income above 50 lakh should be taxed at 30%. However, the crux of the matter was that you have to forego the exemptions if you opt for the new tax regime.

A Treasury source said the government was conducting a review of taxpayers’ lack of interest in the new panels. “The interest of taxpayers in the new tax regime is low. The ministry checked it out,” the source said. Another source also said there has been reflection on how to make the panels more attractive and incentives could be announced in the upcoming budget, without giving further details. There are signs that the budget could announce some exemptions in the new tax system.

Experts say the new income tax plate hasn’t garnered much interest from taxpayers because it’s aimed at lower-income groups and discourages investment in social security.

“Despite the reduced tax rates, only a small proportion of assessees opted for the new regulation. The deductions claimed under the old regime such as investments in ELSS, PPF, life insurance, loss of home ownership, etc. are historically viewed as investment opportunities for social security purposes. They help generate a reasonable saving, leading to follow-on investments and tax benefits. Therefore, the new regime is generally not elected by individuals,” says Sandeep Bhalla, Partner at Dhruva Advisers.

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