Deductions that must be added in new tax regime to make it attractive in interim Budget 2024: Expert
Deductions that must be added in new tax regime to make it attractive in interim Budget 2024: Expert
Preeti Sharma - Partner - Tax & Regulatory Services
The government is trying to make the new tax regime (introduced in FY 2020-21) more attractive vis-à-vis the old tax regime. In Budget 2023, standard deduction of Rs 50,000 from salary and pension income was allowed in the new tax regime. Earlier, standard deduction was available only in the old tax regime. Due to this, from FY 2023-24 the new tax regime offers, two deductions that a salaried individual can claim to save income tax. These are: Standard deduction and National Pension System (NPS) contribution by the employer to the employee's account.
However, tax experts say more income tax deductions must be provided under the new tax regime to make it attractive for a larger section of salaried individuals. It is important to note that the new tax regime offers concessional income tax rates and more income tax slabs but no deductions under sections such as 80C or 80D.
Akhil Chandna, Partner, Grant Thornton Bharat, a business consulting group, says, "The introduction of lower tax rates for individuals under the new tax regime was a welcome move, but it lacked the desired impact due to the absence of corresponding deductions and exemptions. Taxpayers expect the government to strike a balance between lower tax rates and reasonable deductions to incentivise savings and investments."
Abhishek Soni, CEO, Tax2Win.in, an ITR filing website, says, "Salaried individuals who are home loan borrowers are reluctant to move to the new tax regime because they don't want to lose the home loan interest deduction of up to Rs 2 lakh allowed under the old tax regime."
Akhil Chandna, Partner, Grant Thornton Bharat, says: The finance minister can announce three tax benefits under the new tax regime: Increase in standard deduction amount, tax incentives for long-term investments and introduction of tax exemptions for certain allowances. Increasing the standard deduction limit for salaried individuals will directly increase their post-tax income and provide some tax relief. Similarly, some of the deductions - such as employee contributions towards NPS, deduction for medical health insurance premium paid under Section 80D, interest up to Rs 2 lakh paid on housing loan, deduction for interest earned on savings bank account under Section 80TTA - should be extended to the new tax regime as well. This will promote equitable access to healthcare and encourage savings and investments among taxpayers. Further, some allowances received by salaried individuals (such as transport allowance) could be made tax-exempt to reduce the tax liability.
Preeti Sharma, Partner, Tax & Regulatory Services, BDO India, says: Most Indian taxpayers have the habit of initially investing their savings in investment avenues that provide deductions under Section 80C of up to Rs 1.5 lakh. Additionally, the salaried class claims exemptions such as house rent allowance (HRA), leave travel allowance (LTA) and interest paid on housing loan.
To increase acceptance of the new tax regime, the government should allow deductions under this regime. Some of these can be employee's contribution to Employees' Provident Fund (EPF) under Section 80C and employee's contribution to NPS under Section 80CCD(1b) for Rs 50,000. This would also promote the habit of building a retirement corpus. The presence of the two regimes has also created complexity for the taxpayers. A clear transition plan to eventually move to one system of taxation is also warranted.
Abhishek Soni, CEO, Tax2Win.in, an ITR filing website, says: The government should hike the standard deduction limit under the new tax regime. This would contribute to easing the tax burden on salaried individuals, allowing them to retain more of their hard-earned money. Further, HRA must be introduced in the new tax regime for those paying higher rent amounts. Furthermore, introduction of deductions under sections 80C and 80D would offer additional avenues for individuals to save on taxes while promoting responsible financial planning and investment in the new tax regime.
Source :- Economic Times
However, tax experts say more income tax deductions must be provided under the new tax regime to make it attractive for a larger section of salaried individuals. It is important to note that the new tax regime offers concessional income tax rates and more income tax slabs but no deductions under sections such as 80C or 80D.
Akhil Chandna, Partner, Grant Thornton Bharat, a business consulting group, says, "The introduction of lower tax rates for individuals under the new tax regime was a welcome move, but it lacked the desired impact due to the absence of corresponding deductions and exemptions. Taxpayers expect the government to strike a balance between lower tax rates and reasonable deductions to incentivise savings and investments."
Abhishek Soni, CEO, Tax2Win.in, an ITR filing website, says, "Salaried individuals who are home loan borrowers are reluctant to move to the new tax regime because they don't want to lose the home loan interest deduction of up to Rs 2 lakh allowed under the old tax regime."
Akhil Chandna, Partner, Grant Thornton Bharat, says: The finance minister can announce three tax benefits under the new tax regime: Increase in standard deduction amount, tax incentives for long-term investments and introduction of tax exemptions for certain allowances. Increasing the standard deduction limit for salaried individuals will directly increase their post-tax income and provide some tax relief. Similarly, some of the deductions - such as employee contributions towards NPS, deduction for medical health insurance premium paid under Section 80D, interest up to Rs 2 lakh paid on housing loan, deduction for interest earned on savings bank account under Section 80TTA - should be extended to the new tax regime as well. This will promote equitable access to healthcare and encourage savings and investments among taxpayers. Further, some allowances received by salaried individuals (such as transport allowance) could be made tax-exempt to reduce the tax liability.
Preeti Sharma, Partner, Tax & Regulatory Services, BDO India, says: Most Indian taxpayers have the habit of initially investing their savings in investment avenues that provide deductions under Section 80C of up to Rs 1.5 lakh. Additionally, the salaried class claims exemptions such as house rent allowance (HRA), leave travel allowance (LTA) and interest paid on housing loan.
To increase acceptance of the new tax regime, the government should allow deductions under this regime. Some of these can be employee's contribution to Employees' Provident Fund (EPF) under Section 80C and employee's contribution to NPS under Section 80CCD(1b) for Rs 50,000. This would also promote the habit of building a retirement corpus. The presence of the two regimes has also created complexity for the taxpayers. A clear transition plan to eventually move to one system of taxation is also warranted.
Abhishek Soni, CEO, Tax2Win.in, an ITR filing website, says: The government should hike the standard deduction limit under the new tax regime. This would contribute to easing the tax burden on salaried individuals, allowing them to retain more of their hard-earned money. Further, HRA must be introduced in the new tax regime for those paying higher rent amounts. Furthermore, introduction of deductions under sections 80C and 80D would offer additional avenues for individuals to save on taxes while promoting responsible financial planning and investment in the new tax regime.
Source :- Economic Times