In order to encourage the new optional income tax regime introduced in the last Budget, the government proposes to modify the list of eligible refunds and exemptions to allow some more categories of financial saving instruments for taxpayers.
The emerging vision in the discussions in the run-up to the Union budget is in favor of reducing the tax burden to drive higher demand while ensuring more disposable income. This aims to be done through tax proposals to incentivize the new tax regime rather than a major reform of the income tax plates of the previous regime, said two officials involved in the exercise.
“The new income tax regime did not recover as expected. So there is a consideration to include more exemptions like the provident fund in the new income tax option, ”a government official told The Indian Express.
In several of the representations made before the Budget, demands have been raised to extend the cash voucher scheme for the concession of leave travel, extension of tax benefits for medical expenses to all taxpayers, an increase in the limits of the Interest rate for home loans and tax concessions -time home buyers under the old tax regime.
The emerging vision at North Block is that the new tax system, announced by the Minister of Finance in the last Budget, should be incentivized over the old tax regime. The new regime coexists with the previous tax system and was made optional for taxpayers as of this fiscal year.
However, the government is inclined to offer more benefits under the new regime, the sources said. The long-term focus is on eventually moving towards a no-exemption regime, so the new tax system will have priority and incentives compared to the previous regime, an official said.
Introducing the Union Budget for 2020-21 in February last year, Finance Minister Nirmala Sitharaman announced the new concessional income tax regime, in which lower tax rates were introduced, but at the cost of waive various deductions and exemptions, including those currently available in EPF. contribution, tuition payment, capital expenses and interest on home loans, standard deduction of Rs 50,000 and health insurance premium, among others. The new tax regime coexists with the previous tax system and was made optional for taxpayers.
Under the new regime, a person is required to pay a 10 percent tax on income between Rs 5 lakh and Rs 7.5 lakh, and 15% on income between Rs 7.5 lakh and Rs 10 lakh against the existing rate of 20% in the old regime.
There is a 20 percent tax for income between Rs 10 lakh and Rs 12.5 lakh, and 25% for income between Rs 12.5 lakh and Rs 15 lakh against the current rate of 30% for each of these categories.
Income over 15 lakh rupees is taxed at the rate of 30 per cent in both schemes.
Queries sent to the Ministry of Finance by The Indian Express went unanswered. The Union Budget for 2021-22 will be presented on February 1.
Pre-budget discussions within the government have also focused on ensuring lower indirect taxes rather than major changes in direct taxes, in order to protect the government’s own revenue and extend benefits. Cuts in import duties for sectors where the incentive scheme linked to production has been introduced could be in sight. A cut in GST on some items may also be considered later, which will be outside the scope of the Budget and per the GST Council’s decision, officials said.
The collection of the Tax on Goods and Services (GST) has registered an improvement in recent months with a rebound in consumption since the opening of the economy, while the collection of direct taxes continues to be moderate with the pandemic that has affected the income.
Although direct tax collection is known to accelerate in December, cumulatively for the April-December period, the government’s direct tax revenue declined by almost 12 percent year-on-year to around Rs 6.12 lakh crore. On a cumulative basis, GST gross collection, including both the Center and the state stocks, has contracted by 14.1% year-on-year during April-December, but has seen a year-on-year increase in monthly collection since September last year. .
As part of measures to improve demand in the economy, the government announced last October that central government and private sector employees will be able to use their Tax-Free Travel License benefit for various types of purchases subject to certain terms. They would be required to spend three times the LTC fee component to purchase items that attract 12 percent or more of GST.
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