Finance Minister Nirmala Sitharaman proposed big bang announcements for the 'hard-working middle class' in her Budget Speech on Wednesday. She has proposed to increase the personal income tax rebate limit to ₹7 lakh under the new tax regime. The FM has also reduced the number of tax slabs to five as she hiked the basic exemption limit under the new tax regime from ₹2.5 lakh to ₹3 lakh. The FM introduced the new personal income tax regime with six income slabs starting from ₹2.5 lakh in 2020. The FM has also extended the benefit of a standard deduction worth ₹50,000, which was earlier available only under the old tax regime to the new 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. Individuals, however, will be allowed to continue with the old tax regime.
The shift to the new or simplified tax regime, as per Aarti Raote, Partner, Deloitte India, is a little bit sudden. "We expected a gradual shift,” she adds. Raote explains an individual investor who has been investing in Public Provident Fund (PPF) is contributing to his or her life insurance or has taken a home loan to fulfil their goals as well as to avail of tax benefits under the Income Tax Act will have to keep incurring these expenses (costs) even after switching to the new simplified tax regime given the lock-in period or long term nature or investment instruments. The expedited push to the new proposed tax regime may dent an investor’s financial planning for some time.
The government has also reduced the surcharge of the highest rate from 37% currently to 25% in the new tax regime.
The overhauling of the income tax structure under the new proposed tax regime has excited Srikanth Subramanian, CEO, Kotak Cherry. The FM’s proposals for the taxpayers under the new tax regime, he believes, should leave more money in the hands of the middle-class taxpayers that would give a boost to consumption and increase allocation towards several investment options. "Overall, it would leave more people with extra money in their hands and a smile on their faces."
Raote of Deloitte India is optimistic about the benefits of the new tax regime too. In order to allow employees to avail the taxation benefits, the employer has to do a lot of paperwork. The employer has to save the documentation of each employee for many years which is too much administrative work. New Tax Regime will reduce the hassle of heavy documentation phenomenally," says Aarti Raote.
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