Union Budget 2023: New tax regime encourages spending
Finance Minister Nirmala Sitharaman announced new income tax slab rates exclusive to those who opted the new tax regime
Hyderabad: The standard deductions while calculating the income tax are likely to be phased out. Indications to this happening have been given in Wednesday’s Budget.
Finance Minister Nirmala Sitharaman announced new income tax slab rates exclusive to those who opted the new tax regime. There is nothing to cheer for those under the old tax regime.
The old tax regime allows deductions of upto Rs 1.5 lakh under Section 80 C and another Rs 50,000 under Section 80 D. Deductions for provident fund, insurance payments, rent or home loan EMIs, or children’s school tuition fees are covered under the Rs 1.5 lakh limit.
The old tax regime encourages investments in housing, insurance, healthcare and other savings to get the tax deductions.
However, the new tax regime (NTR) makes all such investments futile as they do not get any tax benefits. The focus has shifted from saving to spending. Basically, there is no additional incentive for people who want to save yearly.
The new tax regime, which was introduced in 2020 Budget, was optional. The tax rates in this are lower but no deductions are allowed. Today’s Budget has made it the default and tax payers have to specifically opt for the old tax regime.
“I believe the s tax rebate will not be helpful to the taxpayers. A taxpayer is supposed to take care of his future position, retirement, social security, medical etc. When a person invests in PF, insurance, all these are to create social security for his future. Now, they say that you should pay lesser tax, without taking these social security measures, probably may not be good from the perspective of overall society,” said chartered accountant Ved Jain.
The intention is to shift to NTR as this is expected to give a moderate boost to domestic consumption, said Anand Daga, Partner, Consark Advisory.
“The NTR shall now be considered as a default regime for all the taxpayers, but that does not necessarily mean a better regime for all. Taxpayers still need to look at their personal situation, various investments and expenditure that are eligible for tax exemption under the old regime and then decide which regime is better for them,” Preeti Sharma, Partner, Tax and Regulatory Services, BDO India.
With NTR as the default tax, it would mean significant changes in the payroll procedures of employers for salaried taxpayers.
