Union Budget 2020 India: Points out if people think the new tax regime won’t help, they have the choice not to switch to it.
Union Budget 2020 India: Amid criticism that the new personal income tax (PIT) regime may be less attractive than the existing one, finance minister Nirmala Sitharaman on Sunday asserted that taxpayers in certain brackets will definitely benefit from the proposed structure, and the government would issue more clarifications on this issue if required.
“If the new scheme will eventually result in people paying more tax than in the old scheme, why would I come with such a system?” she asked. In any case, people have a choice not to switch to the new regime if they think the current one won’t help them, the FM added.
The government’s revenue foregone on account of the new regime is pegged at Rs 40,000 crore per annum.
The basic idea was to reduce the tax incidence for individuals gradually and progressively, and also lead to a much-simplified regime by drastically cutting down on a myriad of exemptions. Currently, they are more than 120 exemptions in the individual income tax structure and the Budget has proposed to remove about 70 of them.
The minister asserted that the sharp 18% year-on-year hike in the budgeted capital spending for FY21 from a 13.4% rise in the revised estimate for this year (RE) will help create productive assets and aid in pushing the growth momentum. GDP growth is expected to touch a seven-year low of 5.7% in FY20.
She also exuded confidence that both the spending and disinvestment targets will be met. The government has raised steeply the disinvestment target to Rs 2.1 lakh crore for the next fiscal, against the revised estimate of just Rs 65,000 crore this year.
Some of the divestment plans (Air India sell-off, for instance) could not be carried out earlier this fiscal because of the requirement of due processes, which are necessary to make the disinvestment exercise more transparent as well as to give adequate time to potential investors to make an informed decision, she suggested. These plans will be implemented this year, and the government intends to list LIC and completely sell off its residual 47% stake in IDBI Bank.
Asked about the steep fall in stock markets on Saturday after the presentation of the Budget (the Sensex tanked around 1,000 points), the minister said she would await the movement on Monday by when key stakeholders will have gauged the precise impact of various Budget proposals. Of course, Saturday’s reaction of the domestic stock markets was partly shaped by a slide in global markets due to the coronavirus scare.
Soon after the announcement of the new income tax regime, the government on Saturday evening came out with a list of exemptions applicable for taxpayers switching to the new tax system.
As for the new PIT scheme, the minister said: “…because the income cuts are deeper in the new scheme, we believe a taxpayer from a particular income bracket will be much better off coming into the new system. And the new system, however much I repeatedly say has no exemptions, there are some exemptions that we have allowed in the new system also.”
Some analysts, however, have said the two tax regimes will only make the structure more complex.
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“With the optional new regime, taxpayers will have to evaluate what works better for them. Those committed to long-term savings and investing via 80C may be discouraged and this may likely demotivate them from investing
in tax-saving asset classes,” Archit Gupta, founder of Cleartax, said.
Sitharaman on Saturday introduced the new tax slabs with lower rates for an annual income of up to Rs 15 lakh for those who are willing to forego exemptions and deductions under the new regime. Once an individual chooses the new tax regime, he has to continue with it in subsequent years.
Under the new tax proposal, people with an annual income of up to Rs 2.5 lakh will not have to pay any tax. For income between Rs 2.5 lakh and Rs 5 lakh, the rate (as earlier) is 5%. However, those with an income of Rs 5 lakh to Rs 7.5 lakh will be required to pay a lower rate of 10%; between Rs 7.5 lakh and Rs 10 lakh 15%; between Rs 10 lakh and Rs 12.5 lakh 20%; between Rs 12.5 lakh and Rs 15 lakh 25%; and above Rs 15 lakh 30%.