Budget may see changes in the new income tax regime which prescribes lesser tax but without any exemption. It is also expected to lay the roadmap for implementing the new Income Tax Return form.
Finance Minister Nirmala Sitharaman, in her Budget speech of FY21 announced a new and simplified personal income tax regime wherein income tax rates will be significantly reduced for individual taxpayers who forgo certain deductions and exemptions.
Explaining the problem with the new regime, a senior government official said “In the new regime, the tax kicks in if the total income is above ₹2.50 lakh while in the old regime it is beyond ₹5 lakh. If one takes the exemption, then, tax will kick in after ₹6.5 lakh or 7 lakh and a large proportion of the taxpayers fall in this category between ₹2.5 lakh and ₹7.5 lakh. If they are in the old regime, they will pay no taxes, but if they are in the new one, they will have to pay some taxes. So obviously people will not prefer the new regime,” he explained.
Under the new regime, an individual is required to pay tax at the reduced rate of 10 per cent for income between ₹5 lakh and ₹7.5 Lakh against 20 per cent in the old regime. For income between ₹7.5 lakh and ₹10 lakh, he will pay tax at a reduced rate of 15 per cent against 20 per cent in old regime. Similarly, for income between ₹10 lakh and ₹12.5 lakh the taxpayer will pay tax at a reduced rate of 20 per cent against 30 per cent in the old regime. The income between ₹12.5 lakh and ₹15 lakh under new regime is taxed at the reduced rate of 25 per cent against 30 per cent in the old regime.
Income above ₹15 lakh will continue to be taxed at the rate of 30 per cent. Those earning up to ₹5 lakh will not pay any tax either in the old regime or in the new regime. However, those who are earning more than ₹5 lakh, will be required to pay tax at the rate of 5 per cent in both new and old regime.
Common tax return form
The Budget is also likely to lay the roadmap for a common Income Tax Return Form. The Income Tax Department came out with the draft of a common return form for 6 return forms (ITR1-6), while ITR 7 will continue. Also, taxpayers will have the option to file the returns either in the existing ITR-1 or ITR-4 or the proposed common ITR, at their convenience. Stakeholders can give their comment till December 15.
The official said while the form is finalised the utility needs to be developed. Then testing has to be done. “We have not had a great experience in the first time. So the I-T Department will try. It is quite possible it may come from April 1, 2023 and if not from April 1, 2024 or in the middle,” he said.