The ministry of finance is proposing to review the exemption-free new tax regime in a bid to making it more attractive for individual income taxpayers, sources said.
The government aims to set up a system where there are no exemptions and the complex old tax regime with exemptions and deductions is terminated. The Union Budget 2020-21 introduced a new tax regime. Taxpayers were given the option to choose between the old regime with various deductions and exemptions and the new tax regime that offered lower tax rates without exemptions and deductions. The intention behind the move was to provide significant relief to the individual taxpayers and to simplify the income-tax law.
Sources further said that lowering of taxes in the new regime would make the new tax regime more attractive. A similar tax regime for corporate taxpayers was introduced in September 2019 by significantly lowering rates and removing exemptions. The government had announced a cut in base corporate tax for the existing companies to 22 percent from 30 percent; and for new manufacturing firms, incorporated after October 1, 2019, and starting operations before March 31, 2024, to 15 percent from 25 percent.
Companies opting for these new tax rates will have to forego all exemptions and incentives. Under the new tax regime for individual taxpayers announced on February 1, 2020, people with an annual income of up to Rs 2.5 lakh do not pay any tax. For income between Rs 2.5 lakh to 5 lakh, the tax rate is 5 percent.
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