New alternative personal income tax regime finds few takers

The new regime was introduced as a simplified system with more graded slabs providing benefits to those who did not opt ​​for exemptions and deductions. The idea was also to ensure that the change in tax slabs was more gradual than abrupt.

According to online tax service provider Clear (formerly ClearTax), around 10 per cent of taxpayers using its portal for tax filing have opted for the new regime.

“The trend of filing personal income tax in the Clear portal indicates that taxpayers have not preferred the new alternate tax regime of more classified slabs. Its adoption level is about 10% of all tax returns filed. The new tax regime was brought in as a simplification mechanism and a means to reduce the tax burden. However, taxpayers have chosen to go for tax deduction and claim other tax benefits instead of opting for the simplified regime,” said Srivatsan Chari, Co-Founder, Clear.in.

At a time when budget preparations are underway for the next fiscal, the indifferent response to an alternative tax regime can be a valuable input for the government.

“The Union Budget for FY 22-23 could be an opportunity to rethink the new tax regime,” Chari said.

An email sent to the Finance Ministry seeking comment did not elicit any response at the time of publication.

Experts point out that one reason for the popularity of the older plan is the lack of publicly funded Social Security plans for the vast majority, which makes retirement savings instruments with tax benefits extremely popular.

According to Ved Jain, former president of the Institute of Chartered Accountants of India (ICAI), savings instruments with tax benefits under the old tax regime are important for social security and most individual income tax payers have planned for it.

In a populated country, providing a social safety net for every individual when they are not in a position to earn has high financial costs and, therefore, individuals are required to invest in social security by providing tax relief to the extent of payments made. is encouraged to. Jain said in this regard.

So the non-availability of deductions for Social Security savings in the new tax regime has made it less attractive. For example, closure of plans signed up for a life insurance policy may result in loss, while the new plan does not offer any deductible for it.

“Allowing deduction for Social Security savings under sections 80C and 80D (health insurance premium) of the Income Tax Act (Public Provident Fund, LIC premium, etc.) in the new tax regime will be a win-win solution, and I will I am sure that if this happens, then overall everyone will accept the new plan.”

Experts also pointed out that when the government introduced a new corporate tax regime for businesses in 2019, the rate was reduced from 30% to 22% without tax exemption, but in the case of the new personal income tax regime, The highest slab remains for income above 30% 1.5 million.

whose income is in the range of 5 lakh more 15 lakh would benefit from the rate reduction under the new scheme, but they would have to forgo the benefit of the deduction.