Income tax alert: India plans to revise its tax exemption scheme
The Ministry of Finance proposes to review the new tax regime without exemption soon with a view to making it more attractive to taxpayers with individual incomes, sources said.
Eventually, according to sources, the government aims to establish a system where there are no exemptions and where the old complex tax regime with exemptions and deductions is removed.
The 2020-2021 Union budget introduced a new tax regime. Taxpayers had the option of choosing between the old regime with various deductions and exemptions and the new tax regime which offered lower tax rates with no exemptions or deductions.
The intention behind this decision was to provide significant relief to individual taxpayers and to simplify income tax law.
Asked about the experience of the new tax regime, sources said there were clear signs that people who have completed their home and school loans are willing to switch to the new tax regime as they have no exemptions to claim. .
Sources further said that the reduction in taxes in the new regime would make the new tax regime more attractive.
A similar tax regime for corporate taxpayers was introduced in September 2019 by significantly lowering rates and removing exemptions.
The government had announced a reduction in basic corporation tax for existing businesses from 30% to 22%; and for new manufacturing companies, incorporated after October 1, 2019 and starting their activities before March 31, 2024, at 15% instead of 25%. Companies opting for these new tax rates will have to give up all exemptions and incentives.
Under the new tax regime for individual taxpayers announced on February 1, 2020, persons with an annual income of up to Rs 2.50,000 pay no tax.
The tax rate is 5% for income between Rs 2,500 and Rs 5,000.
Additionally, those who earn between Rs 5,00000 and Rs 7,50000 pay a tax rate of 10%; those earning between Rs 7.50000 and Rs 10.00000 pay a tax rate of 15%; those earning between Rs 10,00000 and Rs 12,50000 pay a tax rate of 20%; those earning between Rs 12,50000 and Rs 1,500,000 pay a tax rate of 25%; and those earning more than Rs 1,500,000 pay a tax rate of 30%.
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