At least two-thirds of people who pay taxes will be able to save money if they move to the new income tax scheme, a top government official has said, citing an analysis of filings in 2018-19 that showed only a small proportion of assessees as having fully utilised the exemption options that brought down their tax liability.
The new scheme gives taxpayers a significantly lower rate than the old one, but does away with 70 of 120 deductions. The scheme, Union finance minister Nirmala Sitharaman said while announcing the budget on February 1, was meant to leave people with more money in their hands instead of forcing them to put it into savings.
“I’m reasonably confident that about 80 per cent of the taxpayers would find NTR (new tax regime) beneficial and I have data analytics to support this estimation. We have analysed tax data base of financial year 2018-19 with almost all kinds of deductions and exemptions availed by the taxpayers and found that around 69 per cent of the taxpayers would be able to save up to Rs 78,000 by switching to the new regime,” revenue secretary Ajay Bhushan Pandey said.
According to the analysis, he added, only 0.6 per cent of the 57.8 million taxpayers whose filings were analysed claimed deductions and exemptions in excess of Rs 4 lakh, and the proportion claiming above Rs 2 lakh was 8.4 per cent.
In the proposed new regime, an individual will be required to pay tax at a reduced rate of 10 per cent for income between Rs 5 lakh and Rs 7.5 lakh, against the current rate of 20 per cent. For income between Rs 7.5 lakh and Rs 10 lakh, the new tax rate is 15 per cent (existing rate of 20 per cent). Similarly, it’s 20 per cent for those earning between Rs 10 lakh and Rs12.5 lakh (compared to 30 per cent currently) and 25 per cent for those earning between Rs 12.5 lakh and Rs 15 lakh (compared to 30 per cent at present). Incomes above Rs 15 lakh will continue to be taxed at the rate of 30 per cent.
Pandey said more than 91 per cent of last year’s taxpayers claimed deductions amounting to less than Rs 2 lakh. These included contributions to general provident fund, public provident fund, Life Insurance Corporation premium payments, health insurance, and for repaying housing loans – all of which will continue to be offered as tax break options if someone chooses to remain in the old scheme.
From the 91 per cent around 11 per cent would be in a “no profit, no loss” situation in monetary terms, Pandey added.
Besides these salaried taxpayers, young income earners or fresh entrants to economic activities, and senior citizens, including pensioners, would find the new regime as “tax without tension” since they have do not prefer saving instruments as much, Pandey said.
The revenue secretary said the new system, since it does away with the host of options, will reduce “the burden of scrutiny and compliance” and minimise paperwork such as needing to keep receipts, records and documents. “Actually the new tax regime would be like ‘file the return and forget’, if you are a genuine taxpayer,” he said.
Pandey cited the case of a typical owner of a medium- or small-sized business to elucidate another category of people who will benefit from the new scheme. “An MSME[micro, small and medium enterprises]
entrepreneur does not get any income exemption benefit like LTC (leave travel concession), HRA (house rent allowance), food coupons etc. I am reasonably confident that once taxpayers carefully calculate their benefits, they will preferably go for the new regime,” he said.
The revenue secretary said having a new option that is offered as an alternative to the old one is a beginning for structural reforms in direct taxes. “In case of indirect taxes, we have already brought in landmark reform through the Goods and Services Tax (GST) which has stabilised to a greater extent and we are continually working to make it better, smooth and genuine taxpayer-friendly. It had to be done in indirect tax domain at one go because of the very inherent nature of indirect taxes,” he said.
He added that the government was also focussing on making the tax administration free of any overreach. “We have already introduced faceless assessment, pre-filled returns, documentation identification number (DIN), Aadhaar-based instant PAN [permanent account number], quick refund in more than 90-95 per cent (filings), targeted approach towards tax evaders on the basis of data analytics and information triangulation, minimal manual interface, etc,” he said.
On whether the new scheme could discourage saving, Pandey said the intention of the new regime was to put additional money in the hands of taxpayers.
“Also, please note a very important point that there are significant numbers of people, who for various reasons, are not able to spare money from their income to save/invest in various saving instruments such as provident fund, pension schemes, interest on house loans, insurance etc. and therefore are unable to take full advantage of all deductions. Therefore, they end up paying more tax in the old tax regime vis-a-vis the new one,” he said.