Income Tax: Finance Minister Nirmala Sitharaman, during her reply on the Finance Bill in the Lok Sabha, emphasized the advantages and growing acceptance of the New Income Tax Regime introduced by the government. She highlighted that the new regime is simpler and offers lower income tax rates for individuals, providing flexibility in financial planning without the need for exemptions available under the Old Regime.
Key Features of the New and Old Tax Regimes
Sitharaman pointed out that the Old Income Tax Regime remains an alternative, offering benefits such as deductions on interest for home loans. Taxpayers without business income can choose between the two regimes and have the option to revert back, providing flexibility and choice.
Dramatic Shift in Taxpayer Preferences
For the previous Assessment Year 2023-24, until December 31, 2023, approximately 3.8% of taxpayers, equating to 30.93 lakh individuals from a total of 7.98 crore Income Tax Returns (ITRs) filed in categories ITR-1 to ITR-4, opted for the New Tax Regime. However, for the Assessment Year 2024-25, until July 31, 2024, there was a dramatic increase, with around 72.8% of taxpayers, representing 5.25 crore individuals out of 7.22 crore ITRs filed in the same categories, choosing the New Tax Regime.
“This shows a substantial shift in taxpayer preference towards the New Tax Regime over the span of just one year,” said Sitharaman. She clarified that this shift does not imply that savings and investments are not happening among the middle class.
Growth in Fintech and Mutual Fund Investments
Sitharaman attributed the increase in investment activities to the growth in fintech, better awareness, and the ease of investment facilitated by UPI, e-KYC, and progressive regulations. She noted that investments in Mutual Funds have surged, with an average of 17.88 lakh new folios being added each month over the last five years since June 2019. The number of unique Mutual Fund investors has grown from under 1 crore in 2014 to about 4 crore today.
The Finance Minister’s remarks underscore the success and growing popularity of the New Income Tax Regime among taxpayers, along with a positive trend in investment activities facilitated by advancements in financial technology and regulatory frameworks. This shift is indicative of the evolving financial landscape and the government’s efforts to simplify tax compliance and encourage investments.
- Smt. Nirmala Sitharaman during her reply on #FinanceBill in #LokSabha.
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