The changes proposed in the Union Budget 2023-24 in the concessional income tax regime will prove to be beneficial for taxpayers, provided they do not have very high committed deductions, said Nitin Gupta, Chairperson, Central Board of Direct Taxes.
In a post Budget interaction with FE, he said: “Let us not pick up outliers, who may be taking all the benefits which are available under the Income Tax Act. For an average person, the new scheme will be very beneficial,” he said, adding that under the new regime, an “average salaried person” will not have to pay any tax.
The new regime leaves more money in the hands of the taxpayers.
Also read: Budget 2023: Laying tracks, train modernisation, gauge conversion, a look at how Railways to use Rs 2.41 crore
Whether the new or the old income tax regime is more beneficial for a taxpayer whose income is beyond this will depend on the amount of deductions and exemptions she claims.
These exemptions would include mortgage interest for house property, house rent allowance and deductions under Chapter 6A of the Income Tax Act. “If a person is committed to Chapter 6A deductions, which could only be a life insurance, provident fund and medical insurance, and mortgage interest, there could be a case where the new regime may not be beneficial if the cumulative amount of deductions are very high,” he said.
Sharing ‘back of the envelope’ calculations done by the CBDT, he said that for a person with an annual income of Rs 18.75 lakh and claiming deductions of Rs 3.75 lakh, the new income tax regime is tax neutral. If for the same income, the deduction is less at about Rs 2.5 lakh for example, the new regime would be beneficial.
Similarly, for an annual income of Rs 13.87 lakh and a deduction of Rs 2.87 lakh, the new regime would be tax neutral. But for deductions of Rs 4.25 lakh for the same annual income, the new regime would not be beneficial. “But such cases will be very negligible. The majority of taxpayers will be benefitted by this new tax regime,” he said, adding that there will be a tax neutral threshold at every income level which computer can check.
Also read: Over 6,000 MSMEs registered on Udyam portal shut during FY22: MSME Ministry
The old income tax regime remains as it is and the option is with the taxpayer whether he or she wants to shift. “We are not forcing the taxpayer. He can adopt whatever saves money in his hands,” Gupta stressed.
Finance minister Nirmala Sitharaman in the Union Budget 2023-24 announced changes in the new income tax regime more attractive to taxpayers by reducing the number of slabs to five and increasing the tax exemption limit to Rs 3 lakh. The income tax rebate limit has also been hiked to Rs 7 lakh in the new tax regime. The benefit of standard deduction has also been extended to the new tax regime.
Gupta said the CBDT will also now start working on the proposed common IT return form. However, a lot of changes will be required at the back end and he declined to give a timeline for its roll out.
“The challenge is that it should not cause disruption rather than ease of filing. We will test it and it will take time,” he said.
The CBDT had in November 2022 proposed a draft common ITR for most taxpayers by merging all returns except ITR 7. The Budget had announced the proposal to roll out a next-generation Common IT Return Form for tax payer convenience.