Finance Minister made five major announcements on personal income tax to benefit the “hard-working” middle class. She also said that while the new tax regime would be the default, tax payers could opt for the old one.
GS III: Indian Economy
Dimensions of the Article:
- New income tax slabs
- What is the new tax regime?
- Who is eligible for rebates under the old tax regime?
- FM proposed to raise the rebate limit from Rs 5 lakh to Rs 7 lakh in the new tax regime.
- Therefore, if an individual has opted for the new tax regime, he or she will not be required to pay any tax up to an annual income of Rs 7 lakh.
New income tax slabs
The new income tax slabs under the new tax regime are
- Rs 0-3 lakh: Nil
- Rs 3-6 lakh: 5 per cent
- Rs 6-9 lakh: 10 per cent
- Rs 9-12 lakh: 15 per cent
- Rs 12-15 lakh: 20 per cent
- Over Rs 15 lakh: 30 per cent
- The move is aimed at incentivising people to shift to the new tax regime, which has not seen much traction since launch in FY21.
What is the new tax regime?
Lower tax regime for individuals
- The lower tax regime for individuals was introduced in 2020 under Section 115BAC as a simpler alternative, without claiming any investment-related deductions or exemptions.
- This was expected to prove useful for individuals who were not in a position to invest and claim deductions. The new regime had more slabs than the previous one.
- However, this regime has not seen many takers so far, as it is considered more complicated.
More Slabs than the Old Regime:
- The new regime was designed to be useful for individuals who were not able to invest and claim deductions.
- However, the new regime has more slabs than the previous one, which only had three tax slabs of 10%, 20%, and 30%. As a result, this regime has not been well received so far, as it is considered more complicated.
Response to Criticism:
- In January, Finance Minister responded to criticism that the new voluntary income tax regime had removed the simplicity of the old one.
- She assured that the gains of simplicity from the old regime have not been reversed and that the new regime is aimed at removing harassment in the tax assessment process.
Parallel System with No Exemptions:
- Sitharaman explained that the old tax regime was full of exemptions, with every tax assessee having 7 to 10 exemptions.
- Despite this, the rate of 10%, 20%, and 30% continues even today.
- To keep the simplicity and not deny those who want to keep the old system, the old regime was kept intact while a parallel system was created with no exemptions but with simpler, more favorable rates.
- The reason for introducing seven slabs in the new regime was to provide simpler and lower rates for those with lower incomes.
Who is eligible for rebates under the old tax regime?
- Under this regime, people can cite investments, house rent, LTA, exemptions under Section 80C, etc. to reduce the amount of tax they have to pay.
- However, some experts believe this means a higher burden of compliance on taxpayers.
-Source: Indian express