The government is likely to withdraw the exemption-free personal income tax (PIT) regime introduced in FY21 as an option for taxpayers, as it has been a “non-starter” despite the comparatively lower tax rates offered, a top official told FE. To serve the purpose of minimising exemptions, however, it may tweak the older regime that a vast majority of the taxpayers continues to opt for, the official added.
The slabs could be rejigged to ensure that the tax liability on most taxpayers will reduce, and more meaningfully for those in the lower tax brackets, the official said, as preparations for the Budget FY24 are underway in the finance ministry.
“In the exemption-free regime, tax is payable on income above Rs 2.5 lakh whereas no tax is payable for income up to `5 lakh in the older scheme if exemptions are availed of. This may be one reason why taxpayers have stuck to the older regime,” the official said. About 75% of annual income tax returns are for annual income below `5 lakh, he noted.
“The government should come out with something interesting such as removing exemptions and rationalising slabs to ensure everyone gets some relief. By doing so, it will also get more revenues due to higher compliance,” the official said.
In the older tax regime, the tax rate moves rather steeply from 5% for income of Rs 2.5-5 lakh to 20% for `5-10 lakh and 30% for above Rs 15 lakh. “It does not make sense to jump from 5% to 20%,” the official added.
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