Will the Union Budget 2023 make the New Tax Regime more appealing to taxpayers?
As citizens of the country, almost all Indians eagerly await the announcement of the Union Budget each year. Every year on the 1st of February the Finance Minister, currently Nirmala Sitharaman, announces the nation’s financial plan with changes that trickle down to affect an average Indian’s daily life. One such element of the budget is any alterations to the prevailing tax structure. Will the Union Budget for FY 2023-2024 bring about changes in how citizens are taxed?
What is the New Exemption-Free Income Tax Regime?
Finance Minister Nirmala Sitharaman in the fiscal 2021 budget announced the new exemption-free tax regime. Under this regime, taxpayers were allowed to opt for concessional tax rates without claiming certain exemptions and deductions that were available to them in the existing old regime.
Taxpayers can avail of lower tax rates of 5%, 10%, 15%, 20%, 25% and 30%, with the highest rate applicable to those with incomes above Rs 15 lakh. The old ‘with exemptions’ regime has three tax brackets: 5%, 20%, and 30%, the highest rate applicable to those with incomes of over Rs 10 lakh.
However, as per various reports, the new tax regime has seen a lukewarm response from the taxpayer community. With the Union Budget for FY 2023-2024, the finance minister is expected to announce measures to make the new tax regime attractive and increase its acceptability among taxpayers.
What are the revisions expected to be made to the new regime?
The finance ministry is likely to attempt to identify ways to boost the adoption of the new regime. One of the changes that can be expected is to increase the income tax threshold from Rs 2.5 lakhs or to expand the tax slabs which could bring down the tax liability of individuals opting for the new tax regime.
The other alternative is to allow some limited deductions and exemptions. This can include housing expenses or health insurance expenses.
Could This New Tax Regime Save You Thousands In Taxes?
These measures, if implemented in the new tax regime, have the potential to save a huge chunk of taxpayers’ money if they opt for it. However, for many individual taxpayers the effective tax liability after they have claimed applicable deductions under the old regime is considerably lower than that in the new regime. This is one of the major reasons why many taxpayers are reluctant to switch to the new regime.
In order to make the new regime more appealing, revising tax slab rates so as to encourage people to opt for a simplified system and put an end to deductions. The rationale behind doing away with tax deductions is that they tend to complicate the system and increase the administrative burden taken on by the tax department, employers, and employees.
Thus, if the new tax regime is improved by incorporating suggested tax-saving measures or other alternatives, more taxpayers are likely to opt for it.
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