NEW DELHI: Half of the taxpayers will opt for the new tax regime in the next two years after the Budget changes made in the scheme, Finance Secretary TV Somanathan told this newspaper on Thursday.
Finance minister Nirmala Sitharaman in her budget announced a slew of changes in the new tax regime including increasing the income rebate for income tax to Rs 7 lakh from Rs 5 lakh and also hiking the basic exemption limit to Rs 3 lakh crore from Rs 2.5 lakh. She also announced that the new tax regime will be made a default option.
“As many as 50% of taxpayers will switch to the new tax regime in the next two years. After making it a default option, the majority of the taxpayers, especially small taxpayers will most likely go for a new tax regime as the income has been made tax-free up to Rs 7 lakh a year,” Somanathan said. “Now, when the taxpayers will go to the income tax portal to file their returns, they will see the new tax scheme as a default option. In case they want to file their return under the old regime, they will have to select it,” he added. According to top sources in the Ministry of Finance, only 4-5% of the total return filers have opted for the new tax regime since it was introduced in 2020.
According to experts, changes proposed in the Budget 2023-24 have certainly made the new tax regime more attractive, but it is not good enough to pull 50% of the existing taxpayers to the new regime.
“Certainly a significant number of taxpayers can move to the new regime but the 50% target seems too ambitious to achieve. There are certain reasons behind this.
The existing exemptions and deductions require long-term commitment from the taxpayer,” said Chetan Daga, who is a chartered accountant by profession and founder of AdvantEdge Consulting. The secretary, however, clarified that the government has no plans to do away with the old tax regime. He said that high income individuals still find the old regime more beneficial.
When asked if the government could increase the threshold income for kicking in the highest tax rate (under new regime) from the existing Rs 15 lakh to Rs 20 lakh or Rs 25 lakh, Somanathan said doing so would mean revenue losses for the government.
New tax regime more attractive
According to experts, changes proposed in the Union Budget 2023-24 have certainly made the new tax regime more attractive, but it is not good enough to pull 50% of the existing taxpayers to the new regime