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Mumbai, Feb. 7 (PTI): The finance ministry expects at least 80 per cent of the taxpayers to move to the new income tax regime, Revenue Secretary Ajay Bhushan Pandey said on Friday.
The budget 2020-21 has introduced more tax slabs and offers higher limits provided the taxpayer is ready to forego all the existing exemptions and deductions including home loan interest, other tax savings investments.
"We feel at least 80 per cent of the people will come to the new scheme," Pandey said during an interaction with opinion makers in the financial capital.
He said the government did an analysis of 5.78 crore taxpayers before the budget and found that 69 per cent of them would save on tax payouts under the new system, while 11 per cent were found to be favouring the old regime.
Of the remaining 20 per cent taxpayers, there will be people who want to avoid the hassle of paperwork and may wish to switch over to the new regime, he said.
The government was in a catch-22 situation because it wanted to lower tax outgoes for the people and ensure that it eases the process of tax, but did not want to disturb the system due to which it made a beginning by giving people options, he said.
He noted that corporates were also given similar option when the taxes were reduced in September, and that 90 per cent of corporates have embraced the exemption-free approach for lower tax rate now.
A large majority of people will find the new regime advantageous, Pandey said.
The government introduced new tax slabs with reduced rates for an annual income of up to INR 15 lakh for those foregoing exemptions and deductions under a simplified tax regime. The new income tax system is optional and a taxpayer can choose to remain in the existing regime with exemptions and deductions.
Those earning up to INR 5 lakh will not pay any tax either in the old regime or in the new regime.
"To provide significant relief to individual taxpayers and to simplify the income tax law, I propose to bring a new and simplified personal income tax regime wherein income tax rates will be significantly reduced for the individual taxpayers who forgo all the deductions and exemptions," Finance Minister Nirmala Sitharmam said in the budget speech.
Under the new tax proposal, people with an annual income of up to INR 2.5 lakh will not have to pay any tax. For income between INR 2.5 lakh to 5 lakh, the tax rate (as earlier) is 5 per cent.
Further, those with an income of INR 5 lakh to INR 7.5 lakh will have to pay a reduced tax rate of 10 per cent; between INR 7.5 lakh and INR 10 lakh 15 per cent; between INR 10 lakh and 12.5 lakh 20 per cent; between INR 12.5 lakh and 15 lakh 25 per cent; and above INR 15 lakh 30 per cent.
"The new tax regime shall be optional for the taxpayers. An individual who is currently availing more deductions and exemption under the Income Tax Act may choose to avail them and continue to pay tax in the old regime," the minister said, adding the proposal will entail a revenue sacrifice of INR 40,000 crore per annum.
Observing that there are about 100 tax exemptions and deductions, she said 70 of them are being removed in the new simplified tax regime, while the remaining will be reviewed and examined in due course.
Many analysts said the move will deter individuals from investing in almost all asset classes like home, mutual funds and also even taking a medical insurance. Analysts also expect majority to continue with the old slabs as that get them additional deductions.