NEW DELHI: The government, which on Saturday announced an alternative, optional personal income-tax regime with lower taxes but without the benefits of tax exemptions, eventually wants to move taxpayers to a lower tax regime with fewer exceptions.
“We eventually have to move to a regime, which has lower taxes and is simpler to comply,” said Union Finance Minister Nirmala Sitharaman in an interaction with journalists here on Sunday.
However, she clarified that the present taxpayers would continue to have a choice between the older three-slab tax structure and the new six-tax slab system.
While the old tax regime has exemptions on various counts, including for savings through specified instruments and standard deductions for salaried taxpayers, the new system has fewer exemptions.
The finance minister said the choice would give taxpayers “many combinations,” where those who did not wish to save through long-term instruments but preferred to spend on big-ticket purchases or investments that did not have a tax shelter, would benefit.
“If someone wants to spend on a car or house, this might be a preferred tax regime,” she pointed out.
Separately, finance ministry officials pointed out that those who have invested money in their own businesses or in stocks could also prefer the new tax regime as it “would give a simpler, clearer, lower tax regime.”
Sitharaman also said that a fresh set of clarifications on the new tax regime would also be given which, once understood, could see migrations to the new tax regime.
As “the income-tax cuts are deeper in the new scheme, we believe a taxpayer from a particular income bracket will be much better off coming into the new system. And however much I repeatedly say the new system has no exemptions, there are some exemptions that we have allowed in the new system also,” she said.
The government on Saturday announced a new tax regime with nil tax for incomes below Rs 5 lakh; 10 per cent tax for those earning between Rs 5 lakh and Rs 7.5 per cent; 15 per cent for incomes between Rs 7.5 lakh and Rs 10 lakh; 20 per cent for incomes between Rs 10 lakh and Rs 12.5 lakh; 25 per cent for incomes between Rs 12.5 lakh and Rs 15 lakh, and 30 per cent for incomes above Rs15 lakh.
Analysts have termed the tax complex and said that in many cases, taxpayers would be better off in the older tax regime.
Others have cautioned that removal of tax incentives for savings could adversely hit the savings rate in the economy, which in turn could reduce the pool of investible resources.
Sitharaman, however, defended her scheme.
“Last night, one set of clarificatory notes was released, there will be more. (If) the new scheme will eventually result in people paying more than in the old scheme, why would I come with such a system?”
Many combinations
The finance minister said the choice would give taxpayers “many combinations,” where those who did not wish to save through long-term instruments but preferred to spend on big-ticket purchases or investments that did not have a tax shelter, would benefit.