The new tax regime, which comes with lower tax rates and fewer tax benefits, was introduced in 2020 but has not found many takers yet. Most taxpayers still prefer to continue with the older regime while filing their tax returns.
Revenue Secretary Tarun Bajaj on Saturday said that the old income tax regime must be disincentivised with a view to encourage more people to opt for the new income-tax regime. Bajaj mooted a shift towards a simplified taxation tax structure.
The new tax regime, which comes with lower tax rates and fewer tax benefits, was introduced in 2020 but has not found many takers yet. Most taxpayers still prefer to continue with the older regime while filing their tax returns.
Bajaj made the remarks while addressing the 2nd TIOL National Taxation Awards 2021 & TIOL Tax Congress in the National Capital, on Saturday.
The new and the old tax regimes
In Union Budget 2020-21, the government introduced a ‘a new and simplified personal income tax regime ‘ where income tax rates were significantly reduced for individual taxpayers who forgo certain deductions and exemptions like standard deduction and 80C benefits.
Under the new regime, an individual is required to pay tax at the reduced rate of 10 per cent for income between Rs 5 lakh to Rs 7. 5 lakh against 20 per cent in the old regime. Effectively, because of rebates under section 87A, those earning up to Rs 5 lakh do not have to pay any tax either in the old regime or in the new regime.
Bajaj said the government came up with a regime to lower personal income tax. “But very few would have taken it because if I find that I have to pay lesser tax by even Rs 50 in a particular regime, I’ll adopt that regime,” he said.
The Secretary noted that for Rs 8-8.5 lakh of income, people in India have to pay no taxes if they take the benefits of 80C, standard deduction and some other benefits. “So, the new regime will not take over unless we … disincentivise this (old regime) and incentivise the new regime with no exemptions. And unless we do that, we will not be able to simplify the tax rates. I want to hear those voices,” Bajaj said.
Instead, even in Budget 2022-23, Bajaj said that the “voices” he heard asked to increase the 80C limit from Rs 1.5 lakh to Rs 2 lakh, and increase the housing loan limit from Rs 2 lakh to Rs 3 lakh.
“What should the simple regime be? The simple regime should be broader tax slabs, lower taxes, no exemptions. If I make money, I should pay taxes. I should not have 100 methods of trying to see that if I take this exemption, if I take this exemption, if I take this route, I will not pay tax. If we keep doing that we are in a maze and the law will only become complex day to day,” Bajaj said.
Under the old tax regime, individuals are allowed to claim various deductions and reduce their tax liability. On the other hand, the new tax regime (introduced in Budget 2020-21) had a better (lower) tax rate, but denied as many as 70 exemptions and deductions available under the income tax laws (including LTC, HRA, standard deduction, deduction under chapter VI A, etc.)
Complete makeover
Many amendments are made to the income tax act every year. However, experts believe that there is a need for a complete rewriting of the Act, keeping the current situation in mind.
“The first Income Tax Act, I think, came in 1860. If I’m not mistaken the next one came somewhere in the early 1900s. And the third one came in 1961. Perhaps this is the time we should write the fourth one. Some attempts have been made in the past, and we have not succeeded in that. I think we need to make a sincere attempt now. And for that I seek assistance from all who say that there are certain provisions in this Act which should go away, which grant unnecessary benefits to certain classes of people,” said Bajaj.
Vipul Jhaveri, Managing Partner- Tax, Deloitte India believed that there is a need for a complete makeover of the tax regime, as selective amendments may not address the need to update or simplify the tax systems. “Digitisation of business and Technology led transformation has completely changed the way business is done, the way people work, even the way the Tax Laws are evolving and Revenue Authorities collaborating has changed. There is a need to revamp the tax system accordingly,” he said.
Deloitte India was the knowledge partner of the 2nd TIOL National Taxation Awards 2021 & TIOL Tax Congress event.
Source: https://www.moneycontrol.com/news/business/personal-finance/old-income-tax-regime-with-deductions-must-go-revenue-secretary-tarun-bajaj-8173271.html
© 2018 CA Chandan Agarwal. All rights reserved.