As India approaches the presentation of the Interim Budget for the fiscal year 2024-25 on February 1st, there’s growing speculation about potential income tax relief, particularly for those adopting the new tax regime. Let’s delve into what these changes could mean for taxpayers and the broader implications for the Indian economy.
Promoting the New Tax Regime
The Indian government is keen to encourage the adoption of the new tax regime. This system, introduced in the fiscal year 2020 budget, aims to simplify tax structures and widen the tax base. The upcoming budget might continue this trend by offering additional incentives to opt for this system.
Expectations of Increased Deductions
Finance Ministry sources suggest that the budget might increase the income tax exemption limit by an additional ₹50,000 under the new regime. This change could mean that income up to ₹8 lakh might be exempt from income tax starting the new fiscal year. This move is expected to encourage more taxpayers to switch to the new system.
The Current Tax System
Under the current tax regime, a standard deduction and other rebates collectively raise the income tax exemption limit to ₹7.5 lakh. This means no tax is levied on annual earnings up to ₹7.5 lakh. However, the new tax regime, lacking deductions under Section 80C and home loan benefits, initially saw limited interest from taxpayers.
Tax Expert Views
Tax experts like Chartered Accountant Aseem Chawla believe that the government might increase the standard deduction by ₹50,000 under Sections 15 and 16 of the Income Tax Act to make the new regime more appealing.
Old vs. New Tax Regime
In contrast to the new system, the old tax regime offers no tax on income up to ₹5 lakh and allows various deductions like HRA, home loan interest, and health insurance. This system, with around 70 types of deductions, remains beneficial for those with significant investments in these areas.
Government’s Stance on Tax Exemptions
While the government is somewhat reluctant to provide extensive tax exemptions, it’s focused on increasing the number of taxpayers. Over eight crore people have filed Income Tax Returns (ITR) in the current fiscal year, and this number is expected to reach 8.5 crore by March 31st, marking a significant increase.
Key Highlights:
- Income Tax Relief: Possible announcement of relief for middle-class taxpayers under the new tax regime.
- Encouraging New Regime Adoption: The government’s focus on promoting the new tax system with increased exemption limits.
- Additional Deductions: Anticipation of an extra ₹50,000 exemption in the new regime, raising the no-tax income limit to ₹8 lakh.
- Comparison of Tax Systems: Old regime offers more deductions but the new regime aims for simplicity.
- Expanding Tax Base: Government’s efforts to increase the number of taxpayers in India.
In summary, the Interim Budget 2024-25 could be a pivotal moment for India’s taxation system, especially for the middle class. The anticipated changes reflect the government’s dual objectives of simplifying the tax process and broadening the taxpayer base. As we await the official announcements, these potential reforms could mark a significant shift in the country’s fiscal landscape.