19 Jan, 2022 3:09p.m.

Budget 2022: Govt may offer more benefits under income tax regime


The government may incentivise the optional new income-tax regime of lower rates but without the exemptions proposed in 2020. The new regime saw only a few takers with most of the taxpayers opting for deductions based schemes. The old tax regime offers tax benefits and a new regime that offers a lower tax rate for those who give up on the benefit of tax deductions for select savings and expenses. The new regime doesn’t allow 70 exemptions and deductions such as house rent and leaves travel allowance, education allowance, section 80C and 80D benefits and home loan interest deduction under Section 24.

The new approach is more suitable for lower-income groups, freshers, those who may desire to avoid paperwork and pensioners. While the lower tax band of 5 per cent is not available under the current tax regime, the benefit of the lower tax slab is not replicated in the higher tax slabs. Many people opted for the new regime in order to avoid tying up their money in Section 80C investments, which are subject to a lock-in period. They choose to invest in money market funds rather than tax-saving instruments, which require them to commit to their investments for a period of three to five years. Those who earn more than Rs 10 lakh per annum have overwhelmingly opted to continue with the old system.

While a similar tax scheme for corporations garnered positive feedback, the same cannot be said for individual taxpayers. According to two persons with direct knowledge of the situation who spoke on the condition of anonymity, the subject is being investigated by the finance ministry, which might further incentivize taxpayers to migrate away from the old and cumbersome exemption regime.

Following the September 2019 decision to reduce the corporate tax rate to 15% for new companies and 22% for existing companies if they forego exemptions, finance minister Nirmala Sitharaman announced a similar option for individual taxpayers on 1 February 2020, which reduced income-tax rates significantly for those willing to forego deductions and exemptions, such as provident fund, home loans, life insurance, medical insurance, and education fee f

According to tax consultants and experts, the concept of an exemption-free regime with lower tax rates will not work for everyone for a variety of reasons, including the lack of an independent social security system, the increased relevance of medical insurance policies in the post-1990 era, and the burden of filing income-tax returns even under the exemption-free regime.

For taxpayers with business income, the regime, according to some accountants, is too strict. "As a result of the epidemic and the work-from-home lifestyle, many people have turned to the stock market in addition to jobs... As a result, they are now taxpayers with both a wage and a business income... In the case of those with income from a company or profession, the 'opt out' from section 115BAC is only accessible once. As a result of these circumstances, business taxpayers are less likely to support the new regime," said Tarun Kumar, a chartered accountant in Delhi. The new tax structure without exemption is described in section 115BAC of the Income-tax Act.

Whatsapp Share Button

⌂ Go to Home Page

Latest in Important News
Latest in Other News Sections

StaffCorner brings you the latest authentic Central Government Employees News.
About us | Privacy Policy | Terms and Conditions | Archives