Although the brand new tax regime, launched within the 2020 Finances, was promoted as a less complicated, user-friendly system, it has not discovered many takers.
In reality, many, together with even influential voices from inside the system, are calling for tweaks to the construction. Former income secretary Tarun Bajaj not too long ago known as for tweaks to the minimal exemptions regime to make it extra interesting to taxpayers.
The brand new regime rationalised tax slabs however there have been fewer tax exemptions. It provided decrease tax charges however eliminated practically 70 exemptions.
The older tax regime, which presents tax-saver advantages underneath Part 80C, 80D, 24 and so forth, continues to be in pressure alongside, with taxpayers being allowed the pliability to decide on between the 2.
The salaried class has a bonus as they will make a selection yearly whereas submitting income-tax returns.
Tax consultants imagine that the federal government ought to think about at the least the deductions which are associated to routine, essential bills underneath the brand new regime.
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Improve the fundamental exemption restrict to Rs 5 lakh
The fundamental exemption restrict – revenue as much as which no tax is payable – is Rs 2.5 lakh underneath each regimes for taxpayers under 60 years of age. Nonetheless, the federal government presents a rebate underneath Part 87A of the Revenue-Tax Act, 1961, to people whose revenue is under Rs 5 lakh. Which means, successfully, they don’t have to pay any tax.
“Additional, people choosing the previous tax regime have the choice to assert exemptions or deductions as much as Rs 1.5 lakh every year underneath Part 80C. Therefore, successfully the gross revenue on which no tax is payable is far larger underneath the previous tax regime,” factors out Parizad Sirwalla, Associate and Head, World Mobility Companies, KPMG India.
Subsequently, there isn’t any incentive for individuals who are claiming tax advantages of at the least Rs 2.5 lakh to maneuver to the brand new regime.
“The fundamental exemption restrict of Rs 2.5 lakh may very well be enhanced to Rs 5 lakh with the intention to make the brand new tax regime preferable to the previous tax regime,” says Sudhakar Sethuraman, Associate, Deloitte India.
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Decrease tax charges, chill out tax slabs additional
The utmost tax price of 30 p.c must also be lowered to 25 p.c to sweeten the deal, say consultants.
“Fixing the utmost tax price at 25 p.c will place India in keeping with among the neighbouring nations. For instance, Hong Kong has a 17 p.c tax price for people whereas Singapore has 22 p.c. This will even make it simpler to draw world skills into India,” says Sethuraman.
Tax slabs, too, will be rejigged to make it taxpayer-friendly. “At the moment, particular person(s) having a complete revenue of greater than Rs 15 lakh are liable to be taxed on the price of 30 p.c. The slabs underneath the brand new regime may very well be stretched to Rs 20 lakh to make it extra helpful,” says Sandeep Sehgal, Associate, Tax, AKM World, a tax and consulting agency.
HRA and housing mortgage deductions
A home is a coveted asset for many Indians. The prevailing regime presents tax reduction on dwelling mortgage principal repaid (as much as Rs 1.5 lakh) and curiosity paid (as much as Rs 2 lakh) underneath Sections 80C and 24, respectively.
Additionally, taxpayers who dwell in rented lodging can declare exemption on home lease allowance (HRA) that they obtain from their employers.
Nonetheless, the brand new regime presents no such concessions. “The federal government may contemplate permitting HRA exemption and Part 80C deduction within the new tax regime. Rental fee and contributions to numerous funding choices which are eligible for Part 80C deduction are invariably incurred by quite a few particular person taxpayers,” says Sethuraman.
Deduction on housing mortgage curiosity is one other profit that may be thought of, say tax consultants. “Many people have opted for buy of home property and people who have taken housing loans are incurring curiosity prices on their newly-owned properties. Thus, if the brand new tax regime additionally permits people to set off such curiosity losses in opposition to wage revenue, they are going to be incentivised to go for the brand new regime,” says Suresh Surana, Founder, RSM India.
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Deductions on medical health insurance premiums paid
The prevailing with-exemptions regime presents a bunch of tax breaks to those that purchase medical health insurance insurance policies. If you’re under 60, you possibly can declare deductions of as much as Rs 25,000 underneath Part 80D on medical health insurance premiums paid.
As well as, in case you pay premiums in your senior citizen mother and father’ insurance policies or are a senior citizen your self, you might be eligible for a tax deduction of as much as Rs 50,000.
Nonetheless, the brand new regime doesn’t provide this profit. “Given the precedence to well being within the wake of COVID-19 and even in any other case, people proceed to avail insurance coverage for themselves and their households by paying medical insurance coverage premium. Additionally, there may be an absence of a common inexpensive healthcare facility throughout the nation. Therefore, the federal government might contemplate permitting the deduction for medical insurance coverage coverage for self and household even underneath the brand new, elective tax regime,” says Sirwalla.