The new income tax regime is at the centre of criticism by tax experts. One tax professional has expressed his concern on social media platform ‘X’ (formerly Twitter), “There’s no room left to breathe under this tax regime. They’ve removed the 80TTA exemption, even Rs 3,200 savings interest is taxed…”
He made this comment about the change in which under the new tax regime, now interest income on bank savings account also has to be taxed. Earlier, this income was under exemption under 80TTA.
What was 80TTA and why was it necessary?
In the old tax regime, under section 80TTA, an individual or HUF used to get tax exemption on interest income of savings account up to Rs 10,000. This benefit was available to those people whose income was limited and who used to save a little and keep it deposited in the bank.
This was a big relief for students, senior citizens, housewives and people with limited salary. But this exemption is no longer available if the new tax regime is chosen. This means that if a person has received interest from a savings account of Rs 3,000 or Rs 5,000 in a year, then it is now completely taxable.
New tax regime: Lower tax slabs but no exemptions
The new tax regime introduced as an alternative from the financial year 2020-21 was part of the government’s tax simplification policy. It had three main objectives: Simplifying the tax system, reducing tax slab rates and removing all major exemptions and deductions.
Under the new regime, not only 80TTA, but many popular exemptions like 80C (LIC, ELSS, PPF), 80D (Health Insurance), HRA, LTA have also been removed.
The government believes that the new system is simple and beneficial for most taxpayers. But in practice, the situation seems to be a bit opposite – especially for those who were able to reduce their tax liability with the help of exemptions.
Direct impact on small depositors
This ‘X’ user said that by imposing tax on small interest income like Rs 3,200, it is clear that the spirit of encouraging extra savings has weakened in the new regime.
Now that the new tax regime has become the default — that is, if a taxpayer does not opt for it, his income will be calculated under this regime — it has become even more important that the common taxpayer understands these nuances.
Experts say: Simplification is necessary, but relief is also important
Tax professionals and financial planners believe that it is important to simplify the tax system, but while doing so, the spirit of social justice and economic incentives should not be weakened. If the government wants to motivate small investors to file taxes, then they must get a basic exemption (such as tax relief on interest income up to Rs 5,000).