New Income Tax Regime Faces Possible Changes for Further Improvements

As per Government sources who spoke on the condition of anonymity, any further movement in taxpayers to the concessional personal income tax regime may demand additional changes for improved attractiveness.

Options under consideration include raising the threshold for the highest Personal Income Tax (PIT) rate or lowering the marginal rate, which might result in large tax savings.

Tax experts recommend fixing the stagnation by either raising the threshold for the highest PIT rate from Rs. 15,00,000 to Rs. 20,00,000 or lowering the marginal rate to 25%. According to the analysis, these changes would result in significant tax savings, especially for individuals in higher income brackets.

A closer examination of prospective modifications suggests that raising the threshold to Rs. 20,00,000 might result in large savings for taxpayers earning more than Rs. 25,00,000, however lowering the highest tax rate to 25% would only provide minimal savings. According to the analysis, the former strategy may benefit low-income taxpayers more in relative terms.

The previous Union Budget included initiatives to increase the appeal of the new tax regime, such as enhancing the Section 87(A) rebate and expanding the basic deduction. Experts propose other improvements, such as decreasing the top tax rate, raising the income threshold, and providing a set-off for house property loss.

While the new tax regime has lower rates, taxpayers lose access to a variety of deductions allowed under the previous scheme. Experts emphasise the need for additional incentives, such as increasing the standard deduction ceiling and basic exemption, to make the new system more appealing.

Tax experts point out that large policy changes are normally avoided in interim budgets, such as the one due on February 1st, which precedes general elections. Despite the potential benefits, experts believe that any changes may be delayed until the new government presents a full budget in July.