Income tax

Alternative personal income tax regime finds few takers

NEW DELHI : The old personal income tax regime, which allows certain expenses to be deducted from taxable income, remains popular among taxpayers, relatively few opting for the new alternative tax regime introduced in the 2020 finance law, according to the professionals helping taxpayers complete their returns. They said softening the simplified tax system could make people opt for it.

The new regime was introduced as a simplified system with more graduated slabs that offered benefits to those who did not opt ​​for exemptions and deductions. The idea was also to ensure that changes in the tax system were more gradual than abrupt.

According to online tax service provider Clear (formerly Cleartax), around 10% of taxpayers who have used its portal to file taxes have opted for the new regime.

“The trend in personal income tax returns in the Clear portal indicates that taxpayers did not prefer the new alternative tax regime of more graduated slabs. Its adoption rate is around 10% of all tax returns filed. The new tax regime was introduced as a simplification mechanism and a means of reducing the tax burden. However, taxpayers have chosen to opt for tax deductions and claim other tax benefits instead of opting for the simplified regime, ”said Srivatsan Chari, co-founder of Clear.in.

The lukewarm response to the alternative tax regime could be a valuable contribution to the government as preparations are underway for next year’s budget.

“The Union’s budget for fiscal years 22-23 could be an opportunity to review the new tax regime,” Chari said.

An email sent to the Finance Ministry requesting comment went unanswered at the time of publication.

Experts pointed out that one of the reasons for the popularity of the old regime is the lack of predominantly state-funded social security schemes, which makes retirement savings vehicles with benefits. very popular tax.

According to Ved Jain, former president of the Institute of Chartered Accountants of India (ICAI), savings instruments with tax advantages under the old tax regime are important for social security and most taxpayers have predicted it.

In a populated country, providing a social safety net for each individual, when unable to earn, entails high tax costs and, as a result, individuals have been incentivized to invest in social security by granting tax breaks to the extent of disbursements made in this regard, Jain said.

The unavailability of deductions for social savings in the new tax system has therefore made it less attractive. In addition, the discontinuation of plans to which one has subscribed, a life insurance policy for example, may result in losses, while the new plan does not provide for any deduction for the same.

“Authorize deductions for social security savings authorized under Article 80C of the Income Tax Act (public provident fund, LIC premium, etc.) and 80D (health insurance premium) in the new tax system will be a win-win solution, and I’m reasonably sure that overall everyone will accept the new program if it is done, ”Jain said.

Experts also pointed out that when the government proposed a new corporate tax regime in 2019 for businesses, the rate was lowered from 30% to 22% without tax exemptions, but in the case of the new regime of personal income tax, the highest slab remains at 30% for the above income ??15 lakh.

Those whose incomes are of the order of ??5 lakh and ??15 lakh will benefit from a rate reduction under the new regime, but they must forgo the benefit of the deductions.

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