Finance Minister Nirmala Sitharaman proposed big announcements for the “hard-working middle class” in her budget speech on Wednesday. She has proposed raising the income tax refund limit to ₹7 lakh under the new tax regime. The FM also reduced the number of tax plates to five when it raised the basic allowance limit from 2.5 lakh to 3 lakh under the new tax regime. The FM introduced the new income tax regime with six income plates starting at 2.5 lakh in 2020. The FM has also extended to the new tax regime the benefit of a standard deduction of ₹50,000, which was formerly only available under the old tax regime. The government is actively promoting the new tax regime, says Saraswathi Kasturirangan, Partner, Deloitte India, which will now be the default tax regime. However, individuals will be allowed to continue with the old tax regime.
The transition to the new or simplified tax regime as per Aarti Raote, Partner, Deloitte India is somewhat sudden. “We expected a gradual shift,” she adds. Raote explains that an individual investor who has invested in the Public Provident Fund (PPF) contributes to their life insurance or has taken out a home loan in order to achieve their goals and claim tax benefits under the Income Tax Act that expenses (expenses) Having to carry funds even after switching to the new simplified tax regime due to the lock-up period or the long-term nature or the investment instruments may affect an investor’s financial planning for some time.
The government has also lowered the top rate surcharge from the current 37% to 25% in the new tax system.
Srikanth Subramanian, CEO of Kotak Cherry, has been enthusiastic about the revision of the income tax structure under the new proposed tax regime. The FM’s proposals to taxpayers under the new tax regime, he believes, should leave more money in the hands of middle-class taxpayers, which would boost consumption and increase allocation to multiple investment options. “Overall, it would leave more people with extra cash in hand and smiles on their faces.”
Deloitte India’s Raote is also optimistic about the benefits of the new tax system. In order for employees to be able to claim the tax benefits, the employer has to complete a lot of paperwork. The employer has to keep the documentation of each employee for many years, which is too much administrative burden. The new tax regime will phenomenally reduce the effort involved in extensive documentation,” says Aarti Raote.
