In the current financial year, the government’s pursuit of increased tax collections and enhanced taxpayer compliance has found support in the new income tax (IT) regime. Designed to cater to salaried professionals earning up to Rs 15 lakh, this regime introduces changes that aim to make tax filing more beneficial and attractive. Let’s delve into how the new IT regime brings advantages to this specific group of taxpayers.
Increased Tax Return Filings and Growth
With over 80 million income tax returns filed for the assessment year 2023-24, there is a noticeable increase compared to the previous year. The robust annual growth in personal income tax collections, boasting a 29.4% increase from April to November, signals positive milestones for the Income Tax department.
Adoption Rates Among Salaried Professionals
Following enhancements to the new tax regime in the Budget for 2023-24, there was an estimation that approximately 50% of taxpayers would opt for this new system. Surpassing expectations, data compiled by the department indicates that over 60% of salaried professionals have chosen to embrace the new income tax regime, making it the default choice for many.
Key Features Catering to Salaried Professionals
The new regime brings specific benefits for salaried professionals earning up to Rs 15 lakh. Lower income tax rates, a threshold of Rs 15,00,000 for the highest tax rate (compared to the previous Rs 10,00,000), and an increased basic exemption to Rs 3,00,000 contribute to a more favorable tax structure.
Extended Benefits for Salaried Class
Salaried individuals, under the new regime, enjoy an increased rebate to Rs 7,00,000 from Rs 5,00,000, and the standard deduction of Rs 50,000 has been extended to both salaried individuals and pensioners, including family pensioners. This means a salaried individual with a gross income of Rs 7,00,000 might not be required to pay any taxes, even without investments under Section 80C.
Appeal for High Net Worth Individuals
High net worth individuals (HNIs) earning over Rs 5 crore find the new regime appealing due to a reduction in the maximum marginal tax rate from 42.74% to 39%. Changes in the surcharge rate further contribute to the attractiveness of the new regime for HNIs.
Expert Recommendations for Further Improvements
While the new regime has been well-received, experts suggest further improvements, such as reducing the highest tax rate to 25% and increasing the threshold limit to Rs 20,00,000. Recommendations also include raising the limit of standard deduction and basic exemption, along with allowing set-off for House Property Loss to enhance its appeal.
Anticipated Challenges and Unlikely Changes
Despite the potential benefits, challenges remain, and experts suggest possible improvements. However, given the approaching interim Budget before the general elections in 2024, major changes are unlikely.
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