Centre planning rate reforms in new income tax structure: Reports
By siliconindia | Wednesday, 18 January 2023, 10:32:05 AM IST
Ahead of the Union Budget 2023 due on February 1, the Central government is considering lowering rates under its voluntary income tax framework and could roll out revised slabs, as per a report.
However, the final call rests with the Prime Minister's Office. A 5 per cent tax is levied on total income between Rs 2.5 lakh and Rs 5 lakh, 10 per cent on Rs 5 lakh to Rs 7.5 lakh, 15 per cent on Rs 7.5 lakh to Rs 10 lakh, 20 per cent on Rs 10 lakh to Rs 12.5 lakh, 25 per cent on Rs 12.5 lakh to Rs 15 lakh, and 30 per cent on above Rs 15 lakh.
Individuals can recently decide which set of rates they want to be taxed under. The government has not made data on the number of individuals availing the new tax system.
Finance Minister Nirmala Sitharaman would present Union Budget for 2023-24 in the Lok Sabha on February 1 amidst expectations that the government will raise the income tax limit and provide relief to the middle class taxpayers, besides others.
"I too belong to the middle class so I can understand the pressures of the middle class. I identify myself with the middle class so I know," she said while speaking at a function organised by the Panchjanya magazine, an RSS- associated weekly.
While the new optional income tax scheme prooffers lower headline taxation rates on annual income, experts say it is unattractive to many as it does not permit exemptions on housing rentals and insurance among other things.
Investments in PPF and other tax savings schemes should be allowed as deductions, and the threshold for 30 per cent tax should be raised to Rs 20 lakh under the concessional income tax regime in Budget 2023-24 to make it attractive for middle-income taxpayers, experts said lately.
The scheme, however, has not gained traction as in many cases it resulted in a higher tax burden.
Experts believe that Finance Minister Nirmala Sitharaman should look at consisting of certain popular tax deductions claimed by individuals, in addition to increasing the basic exemption limit and hiking the threshold for peak tax rate, in the optional tax regime to make it attractive for taxpayers.
Nangia Andersen India Chairman Rakesh Nangia said the government should rationalise the tax rates further in the optional tax regime to make it commensurate with the deductions/exemptions that the taxpayer is foregoing.
"The biggest drawback of the optional tax regime is that, for the lower and middle-class taxpayers, tax rates provided under the optional tax regime struggle to compete with the normal tax regime, if the available deductions and exemptions are pressed into service. Investments and social security linked deductions should be made available even in case of the optional tax regime," Nangia stated.
"Allowing exemptions and tax deductions in the new income tax regime would make it complex and this wasn't the intention while introducing the scheme," one of the government sources said.
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