Winning Bizness Desk

Mumbai. In the coming budget, as sources are saying, the Modi-led government planning to give a big relief to the crores of taxpayers. It has planned to come up with a new tax regime with attractive offers and its provisions will be announced in the general budget to be presented on February 1, 2023. In the new system of income tax, the existing limit of tax exemption can be increased from Rs 2.50 lakh to Rs 5 lakh. At present, taxpayers do not have to pay any tax on annual taxable income of Rs 2.50 lakh. So taxpayers in the slab of Rs 2.50 to Rs 5 lakh have to pay 5% tax. Under the new system of income tax in the budget to be presented on February 1, 2023, it is being considered to increase the tax exemption limit to Rs 5 lakh. So that the new tax system can be made popular among taxpayers. If the tax exemption limit is increased to Rs 5 lakh, it will help in reducing the tax burden on taxpayers, so that they can invest more money.

People avoid adopting the existing new tax system

Presenting the budget in February 2020, Finance Minister Nirmala Sitharaman had announced the implementation of the new income tax system. But under the new tax regime, taxpayers do not get the benefit of tax exemption under section 80C and 80D. Many types of deductions have been abolished in this tax system. Due to which taxpayers are shying away from adopting the new tax system. Out of the total taxpayers, only 10 to 12 per cent taxpayers have opted for the new system. Because more tax has to be paid in this and the benefit of tax exemption is also not available.

Taxes are equal in the old & new tax regime

Tax experts believe that if the tax burden becomes equal in the old and new tax regime, then taxpayers can adopt the new option as it will be easier to file returns and reduce the burden of compliance. Tarun Bajaj, who recently retired from the post of Revenue Secretary, had said that in the new income tax regime, those earning up to Rs 2.5 lakh do not have to pay any tax, but those earning up to Rs 7.5 lakh in the old tax regime are saved from paying tax. Most of the people fall in this category and hence there is no incentive to opt for the new income tax regime.

Tax rates may be lower

Tax rates may be lower in the new system of income tax, but the new system is not appealing to taxpayers due to not getting the benefit of standard deduction apart from tax exemption on home loan principal or interest or savings. This is the reason why the government is considering making the new system attractive. In the old regime of income tax slabs, taxpayers can take advantage of many types of tax exemptions. Under Section 80C of Income Tax, you can avail tax exemption on home loan principal amount along with insurance, ELSS, Provident Fund, PPF and children's tuition fees. There is also a provision of tax exemption on home loan interest up to Rs 2 lakh. Standard Deduction of Rs 50,000 is also available, which is not available in the new tax regime.