In Budget 2023-24, the government made the new tax regime the default option, inviting criticisms that it would slowly phase out the old regime
The government expects about 50-60 per cent taxpayers to move to the new tax regime after the tax rate revisions that were announced in the Union Budget 2023-24, Central Board of Direct Taxes (CBDT) Chairman Nitin Gupta told Outlook Business in a post-budget interaction.
In the last full budget of the government, Finance Minister Nirmala Sitharaman on February 1 announced a slew of income tax benefits to make the new personal income tax regime more attractive for taxpayers. For the new tax regime, Sitharaman increased the income tax rebate limit from Rs 5 lakh to Rs 7 lakh. Total income between Rs 3 lakh and Rs 6 lakh would attract a 5 per cent tax, income between Rs 6 lakh to Rs 9 lakh would attract a 10 per cent tax, income between Rs 9 lakh to Rs 12 lakh would attract a tax of 15 per cent, income between Rs 12 lakh to Rs 15 lakh would be taxed at 20 per cent, and a 30 per cent tax would be levied on income of Rs 15 lakh and above.
The government also made the new tax regime the default option, inviting criticisms that it would slowly phase out the old regime. “We are not forcing anyone to opt for the new system. The tax department has provided two quantitative baskets to taxpayers and they have the liberty to choose what they want,” Gupta said.
While the new tax regime has been made more attractive in terms of tax rates, it does not have the deductions and exemptions that a taxpayer could avail in the old system. The new regime was announced in last year’s budget and it was also said that deductions could not be availed in the new system. The new regime was been incorporated as exemptions and deductions made tax compliance and administration cumbersome for taxpayers and officials.
Under the new regime, taxpayers would not be entitled to exemptions like interest on housing loan, house rent allowance, travel allowance, deductions for investments in public provident fund, life insurance premium, and medical insurance premium, among others.
According to Gupta, taxpayers now have the flexibility to choose what is best for them. “As a salaried employee, if you want to choose one basket today and another basket in the next year, you can do that too. Once a taxpayer knows what his tax outgo is under both the system and which is lesser, he’d opt for that. In the new regime, what we are saying is you are not bound by any specific instrument where you have to save in to avail tax benefits. Once you know what is your disposable income, you choose where you want to invest.”
He added, “We have not made any changes in the old regime. Whatever benefits have been given, are in the new one. So it probably shows the shift of the government, that whatever tweaks would be made would only be in the new regime and not in the old.”
The budget also proposed to slash the highest surcharge rate to 25 per cent from 37 per cent in the new tax regime. The government is expected to lose about Rs 35,000 crore in net tax revenue because of the slashes in tax that have been announced. “Revenue of about Rs 38,000 crore—Rs. 37,000 crore in direct taxes and Rs 1,000 crore in indirect taxes—will be forgone while revenue of about Rs 3,000 crore will be additionally mobilised. Thus, the total revenue forgone is about Rs 35,000 crore annually,” Sitharaman had said in her budget speech.
For FY2023-24, the government pegged tax revenue at Rs 33.6 lakh crore, up by 10.4 per cent from Rs 30.4 lakh crore projected FY23 Revised Estimates (RE). For FY23, the government had projected tax revenue of Rs 27.5 lakh crore. Direct tax collection for FY24 has been pegged at Rs 18.23 lakh crore. FY23 RE pegged direct tax revenue at Rs 16.5 lakh crore, higher than FY23 BE of Rs 14.2 lakh crore.
Gupta said that the direct tax collection for FY24 was achievable and realistic. “The government is trying to expand the tax base by plugging leakages. This will help us in augmenting our revenue collection. Through collection of data from reporting entities and technology, we are also trying to bring more taxpayers under the tax net. If people are buying properties and not filing return of income, we are issuing notices to such taxpayers. Asset and income mismatches are being studies and notices are being issued. We are trying to deepen the tax base and increase our collections,” he said.
By using transparency and technology, the government is trying to nudge taxpayers that it is aware of their transactions and that required tax should be paid on the transactions. Under the e-verification scheme, the government has put out close to 65,000 cases on which the government is seeking clarifications because the income shown by the reporting entity is different from income disclosed in the returns filed by taxpayers. “To correct the anomalies without any litigation, we are providing the taxpayers an updated filing of returns, a statutory scheme operational from this financial year. In the updated return, the taxpayer can correct the anomaly with a higher tax and no penalty,” Gupta added.