As the new income tax regime becomes the default scheme, tax payers would gradually move towards the culture of spending more and saving less, believe tax and wealth management experts.
The Union Finance Minister Nirmala Sitharaman, during her budget 2023 speech, announced the new tax slabs that promise to leave more money in the hands of tax payers.
For the unversed, there are two tax regime in force. The first one has higher tax rates but one is entitled to claim tax exemptions by making investments such as those allowed under section 80C.
On the other hand, the new regime (in which the tax slabs have been changed) enables tax payers to pay taxes at lower rates but sans tax exemptions.
Chartered Accountant Kanan Bahl, growth consultant for fintech firms and AMCs, says that the debate between new and old tax regime gets real now.
Sharan from 'Finance with Sharan' explains that the new regime is now attractive over the old one even if you are claiming 80C deduction.
“If you are earning up to ₹10 lakh, new tax regime becomes attractive even if you are exhausting 80C deduction. However, if you are availing multiple deductions like HRA, Housing loan interest etc., then a well-thought calculation should be made,” says Sharan from 'Finance with Sharan'.
In other words, investors will now have less incentive to invest in the tax-saving investment schemes.
These are the latest tax rates now:
| Income | Tax rate |
| ₹3 lakh- ₹6 lakh | 5% |
| ₹6 lakh- ₹9 lakh | 10% |
| ₹9 lakh- ₹12 lakh | 15% |
| ₹12 lakh- ₹15 lakh | 20% |
| Over ₹15 lakh | 30% |
Mumbai-based Chartered accountant Chirag Chauhan, says that the latest changes are good for those who are not claiming exemption. Rather than seeing it as a way to dissuade investors from investing in the tax-friendly schemes, investors can now invest wherever they want.
“With this, they will earn more by investing in the mutual funds i.e., 10-12 percent and will also have liquidity without any lock-in period of 3 years. But there is no denying the fact that the saving culture will reduce,” says Chauhan.
S Sridharan, Founder of Wealth Ladder Direct, also echoes the same sentiments: “The new tax regime discourages the saving habits of individuals. Since the take-home income of tax payers will now increase, it will adversely impact the saving habit of tax-payers. Also, since financial illiteracy is high in India, people will now spend more. Some will start investing more, while others will start spending.”
