If media reports that the new tax regime is likely to be made more attractive in the coming budget 2023 prove correct, then it is likely that this may also signal the end of the old tax regime. This appears the logical consequence of sweetening the new ‘concessional tax regime’ by introduction of a few limited exemptions/tax deductions and/or hiking the basic exemption limit. This is because of the following reasons.
Continuing two parallel tax regimes for the long term does not really achieve the aim of simplification of tax administration. Therefore, the government may look at phasing out the old tax regime after the new tax regime has been suitably tweaked to attract the majority of taxpayers. The phasing out process could be immediate or stretched over several years. The former revenue secretary Tarun Bajaj had said, while speaking to the media just before his retirement in November last year, that the new /concessional tax regime needed to be reinvented and once this was done, the government could look at having only one tax regime instead of the current two regimes.
Here’s what Bajaj said in an interview to Business Today: “When you analyse–you find that a large number of the people who file returns in India show income of less than Rs 7 to 7.5lakh–about 75 to 80% of the people who file returns-if these people use the new regime then they have to pay tax after basic exemption of Rs 2.5 lakh but in the old regime you don’t have to pay any tax–so I am saying clearly that there is a need to relook at the scheme and come out with a scheme which has less number of exemptions and may be larger slabs and the rate which doesn’t shoot up sharply from 5 to 20% but moves up slowly and if we do that then maybe a large number of people would opt for it and then may be at some stage the govt can also think of rather than having two options have only one option.”
