Aimed at making it more attractive for individual income taxpayers, the finance ministry is proposing to soon review the exemption-free new tax regime, sources said, as per PTI report.?Eventually, the government wants to establish a system where there are no exemptions and the complex old tax regime with exemptions and deductions is terminated.
To refresh your memory, the Union Budget 2020-21 had introduced the new tax regime which involves different tax slabs and rates in comparison to the old regime.?
Taxpayers were given the option to choose between the old regime with various deductions and exemptions and the new tax regime that offered lower tax rates without exemptions and deductions.
The intention behind that move was to provide significant relief to the individual taxpayers and to simplify the?income-tax?law.
The report mentioned that the sources said that there are clear signs that people who have finished their home loan and education loan are willing to shift to the new tax regime as they have no exemptions to claim. They added that lowering of taxes in the new regime would make the new tax regime more attractive.
The taxpayer opting for concessional rates in the new tax regime will have to forgo certain exemptions and deductions available in the existing old tax regime. In all, there are 70 deductions & exemptions that are not allowed, out of which the most commonly used include LTA, HRA, conveyance allowance,?relocation allowance, other special allowances, standard deduction on salary, interest on housing loan, etc.
As far as rates and tax slabs are concerned, the new tax regime says that those with an annual income of up to Rs 2.5 lakh do not pay any tax (in old regime too).
For income between Rs 2.5 lakh to 5 lakh, the tax rate is 5% for both regimes (tax rebate u/s 87a is available). Those with an income of Rs 5 lakh-Rs 7.5 lakh have to pay a reduced tax rate of 10% instead of old regime’s 20%; those with income between Rs 7.5 lakh-Rs 10 lakh get a reduced tax rate of 15%? instead of old regime’s 20%; income between Rs 10 lakh-12.5 lakh gets 20% rate instead of old regime’s 30%; income between Rs 12.5 lakh and 15 lakh gets 25% rate instead of old regime’s 30%. But those having income above Rs 15 lakh get the same rate of tax at 30% in both regimes.
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