More Than 60 Per Cent Of Taxpayers Adopt New I-T Regime

NEW DELHI: The plans to increase buoyancy in tax collections, widening the tax base and increasing the compliance by taxpayers seem to have been aided by the new income tax (IT) regime in the current financial year. However, experts feel a few more tweaks in the tax rates in the forthcoming interim Budget could make the exemption-free regime more attractive.

So far, more than 80 million income tax returns (ITRs) have been filed for assessment year (AY) 2023-24, against 75.2 million filed in AY 2022-23. Personal income tax collections have also seen a robust annual growth of 29.4% in April-November. These were touted as a “milestone” by the I-T department on ‘X’ on December 29.

In fact, the growth rate in PIT collections is the highest in at least 10 years – barring FY22, which was on a low base, as income tax collections had contracted more than 12% in April-November FY21, the pandemic year.

After the new tax regime was sweetened in the Budget for 2023-24, revenue secretary Sanjay Malhotra estimated that around 50% of the taxpayers would adopt the new regime. The earlier version of the exemption-less regime, launched in XX, didn’t get much traction among the taxpayers. This was because the tax slabs in the exemption-less regime weren’t attractive after taking into consideration the benefit of various deductions and exemptions available under the old tax regime.

And given the data that has now been compiled by the department for AY 2023-24, official sources say more than 60% of the taxpayers have adopted the new income tax regime, which is now the “default regime”. “Over 50 million ITRs have been filed under the new tax regime,” an official told FE.

The new tax regime offers lower income tax rates with a threshold of Rs 15,00,000 for the highest tax rate as compared to the old regime where the threshold for highest tax rate was Rs 10,00,000. The basic exemption under this regime has also been increased to Rs 3,00,000 from Rs 2,50,000.

Further, the rebate under the new tax regime has been increased to Rs 7,00,000 from Rs 5,00,000 before and the benefit of standard deduction of Rs 50,000 has also been extended to the salaried class and the pensioners including family pensioners. Accordingly, a salaried individual earning a gross income of Rs 7,00,000 would not be required to pay any taxes even if no investments are made under Section 80C.

Moreover, high networth individuals (HNIs) earning more than Rs 5 crore would prefer the new regime as the maximum marginal tax rate has dropped from 42.74% to 39% due to changes made in the rate of surcharge. The surcharge rate on income over Rs 5 crore was slashed to 25% from 37% in the new regime.

Sudhir Kapadia, partner-tax and regulatory services, EY said: “In FY20, when the exemption-less regime was implemented, deductions were still applicable, and the slab rates without deductions lacked appeal. Consequently, while low-income earners reaped benefits under the FY20 scheme, the majority of middle-income and high-income earners did not experience significant advantages.”

However, experts say that while the changes in the new regime have made it more lucrative for taxpayers, the old regime still has its advantages like availability of deduction for House Rent Allowance (HRA), Leave Travel Allowance (LTA), and 80C deduction.

“Therefore to make the new regime more attractive, the government may consider reducing the highest tax rate from 30% to 25% and increasing the threshold limit for the highest tax rate from Rs 15,00,000 to Rs 20,00,000,” said Divya Baweja, Partner, Deloitte India.

“Further, the limit of the standard deduction and basic exemption limit may also be increased. Allowing the set-off for House Property Loss could provide further boost to taxpayers towards the new regime,” Baweja said. Even though the aforementioned changes may simplify the tax structure and attract more taxpayers, it’s unlikely the government would introduce any more changes, given its the interim Budget before the general elections in 2024.

Source: The Financial Express