Over 60% of Taxpayers adopt New Income Tax Regime

Robust Growth in Tax Returns and Collections Signals Success of New Income Tax Regime

The government's efforts to enhance tax collections, broaden the tax base, and increase taxpayer compliance appear to be gaining momentum with the implementation of the new income tax (IT) regime in the current financial year. With more than 80 million income tax returns (ITRs) filed for the assessment year 2023-24, a notable increase from the previous year, and a robust annual growth of 29.4% in personal income tax collections from April to November, experts suggest that the new regime is contributing significantly to these positive outcomes.

Majority Embrace New Regime, but Experts Call for Additional Tweaks

While official sources report that over 60% of taxpayers have adopted the new income tax regime, experts believe that further adjustments in tax rates could make the exemption-free regime even more appealing. The earlier version, launched in 2019-20, did not gain widespread acceptance due to less attractive tax slabs when compared to the old regime, considering various deductions and exemptions available.

Key Features of the New Income Tax Regime

The new income tax regime, sweetened in the Budget for 2023-24, offers lower tax rates with a higher threshold for the highest tax rate. The basic exemption has been increased, and rebates enhanced, making it more lucrative for taxpayers. High net worth individuals (HNIs) also stand to benefit, with a reduction in the maximum marginal tax rate and changes in surcharge rates.

Expert Opinions on Further Enhancements

Experts recommend potential tweaks to make the new regime more attractive, including a reduction in the highest tax rate from 30% to 25% and an increase in the threshold limit. Suggestions also include raising the standard deduction and basic exemption limit. While acknowledging the advantages of the new regime, experts highlight the continued appeal of the old regime with deductions like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and 80C.

Interim Budget Expectations

As the interim Budget approaches before the general elections in 2024, experts express uncertainty about the government introducing further changes. While acknowledging the potential benefits of simplifying the tax structure, some believe it is unlikely that significant alterations will be made at this stage.

Conclusion

The positive trends in tax returns and collections, coupled with the majority adoption of the new income tax regime, indicate progress in the government's efforts to streamline taxation. However, expert recommendations for additional tweaks in the forthcoming interim Budget underscore the ongoing quest for an exemption-free regime that is universally appealing to taxpayers.