Old Income Tax System with Deductions Must be Phased Out: Revenue Secretary Tarun Bajaj

Tarun Bajaj, Revenue Secretary, stated on Saturday that the previous income tax regime must be disincentivised in order to encourage more people to opt for the new income tax regime. Bajaj proposed a transition toward a simpler tax structure.

The new tax regime, which includes lower tax rates and less tax perks, was implemented in 2020 but has yet to find many takers. The majority of taxpayers still prefer to file their tax returns under the former regime.

On Saturday, Bajaj delivered remarks at the 2nd TIOL National Taxation Awards 2021 & TIOL Tax Congress in the National Capital.

The New and Old Tax Systems

The government established a “new and streamlined personal income tax regime” in the Union Budget 2020-21, with income tax rates drastically cut for those who forego certain deductions and exemptions such as the basic deduction and 80C benefits.

Individuals earning between Rs 5 lakh and Rs 7. 5 lakh must pay tax at a reduced rate of 10% under the new regime, as opposed to 20% under the old regime. Effectively, persons earning up to Rs 5 lakh do not have to pay any tax in either the old or new regimes due to rebates under section 87A.

According to Bajaj, the government devised a system to reduce personal income tax. “However, very few would have taken it,” he continued, “because if I learn that I can pay less tax by even Rs50 in a specific regime, I’ll adopt that regime.”

People in India have to pay no taxes on income of Rs 8-8.5 lakh if they take use of the 80C, standard deduction, and other perks, according to the Secretary. “So, unless we… disincentivize this (old regime) and incentivize the new regime with no exceptions, the new regime will not take over. We won’t be able to simplify the tax rates unless we do that. Those voices intrigue me, and I’d like to hear them” Bajaj explained.

Instead, Bajaj stated in Budget 2022-23 that the “voices” he heard requested that the 80C ceiling be increased from Rs 1.5 lakh to Rs 2 lakh, and the housing loan limit be increased from Rs 2 lakh to Rs 3 lakh.

“How simple should the regime be? Broader tax slabs, lower levies, and no exemptions should be the simple regime. I should pay taxes if I earn money. I shouldn’t have 100 ways to check whether I can avoid paying tax if I take this exemption, if I take this exemption, if I take this route. If we continue in this direction, we will be lost in a maze, and the law will only become more complicated day by day,” Bajaj added.

Individuals could claim several deductions and lower their tax liability under the previous tax system. The new tax regime, on the other hand (introduced in Budget 2020-21), had a better (lower) tax rate, but it eliminated up to 70 exemptions and deductions permitted under the income tax regulations (including LTC, HRA, standard deduction, deduction under chapter VI A, etc.)

A Total Transformation

Every year, numerous revisions to the Income Tax Act are adopted. Experts, on the other hand, believe that the Act has to be completely rewritten in light of the current circumstances.

“I believe the first Income Tax Act was passed in 1860. If my memory serves me correctly, the next one arrived in the early 1900s. The third was released in 1961. Perhaps now is the time to start writing the fourth. Attempts have been made in the past, but we have not been successful. I believe we must now make a real effort. And for that, I want help from anyone who believes that certain elements in this Act should be repealed because they provide superfluous benefits to some groups of people,” Bajaj added.

Source : Moneycontrol