scorecardresearchIncome Tax: Government is considering lower tax rates; Read details

Income Tax: Government is considering lower tax rates; Read details

Updated: 25 Aug 2022, 10:20 AM IST
TL;DR.

Income Tax: Exemption-free personal income tax slabs with lower rates were introduced as an option in the Union Budget 2020-21, but are yet to find acceptance in a big way. Read further to know what does the government plan to do now

The government may also phase out the older personal income tax regime, which offers several deductions and benefits.

The government may also phase out the older personal income tax regime, which offers several deductions and benefits.

The government is contemplating making the exemptions-free personal income tax regime more lucrative by rolling out lower tax rates, a government official said, since the new system has failed to woo taxpayers, reported Mint.

The government may also phase out the older personal income tax regime, which offers several deductions and benefits. The move aims to simplify the income tax regime and reduce litigation, which is seen as complex amid several deductions and benefits available to taxpayers.

Exemption-free personal income tax slabs with lower rates were introduced as an option in the Union Budget 2020-21, but are yet to find acceptance in a big way.

The benefits of the old regime include deductions allowed under personal income tax, including house rent, life insurance and health insurance.

“We have not seen much traction for the new personal income tax regime without exemptions so far. That’s because individuals are calculating their taxes based on both the regimes and seeing which one is beneficial. Those already taking benefits of insurance or house rent would not like to opt for a regime that does not offer any incentive. There is a need to sweeten the new income tax regime to find takers,” the official cited above said on the condition of anonymity.

One of the ideas being mooted is to have a wider range of income in each of the slabs so that more people benefit from opting for the lower slabs, and a taxpayer’s shift to the subsequent slabs will only happen with a substantial jump in income.

The official added that there should not be two personal income tax schemes but only one. “We will need to see if we need to lower the tax rates or rework the slabs to make it attractive. The tax regime will become easier. Litigation will also ease. People who make more money should pay more tax; those who make less money should pay less," he added.

The move is expected to be in line with the overhaul of the corporation tax regime that began with the introduction of sunset clauses on several exemptions, including for special economic zones.

The Centre is exploring ways to do away with exemptions in the personal income tax regime and eventually do away with the two options and have only a single regime without any tax benefits.

First Published: 25 Aug 2022, 10:01 AM IST