The new income tax regime, also known as the concessional tax regime, offers lower tax rates for individual taxpayers compared to the old tax regime. Starting from FY 2023-24, this new regime has become the default option if no tax regime is selected by the taxpayer.
To make the new tax regime more appealing, experts say it is crucial to retain key benefits that have been instrumental in tax planning. Benefits such as exemptions for House Rent Allowance (HRA), deductions for housing loan interest, and provident fund contributions provide a sense of security and continuity for taxpayers. There is a proposal for a single version of the personal tax regime that retains key aspects of the old regime while incorporating a few benefits from the new regime.
Raise standard deduction limit
The 2023 Budget introduced a standard deduction of Rs 50,000 for salaried taxpayers and individuals receiving pensions. The rebate under Section 87A was also increased for taxable incomes not exceeding Rs 7 lakh under the new tax regime. This exempted individuals with taxable incomes up to this level from paying taxes. Additionally, the highest surcharge under the new regime was eliminated. However, most deductions and exemptions are not allowed under the new tax regime. Increasing the standard deduction is essential to encourage more people to opt for the new regime, making it beneficial for a larger group of taxpayers.
Increase basic exemption limit
There is anticipation that the government may raise the income tax exemption limit to Rs 5 lakh from the current Rs 3 lakh in the upcoming Budget 2024. Since the new tax regime is the default, increasing the exemption limit would benefit many taxpayers. It is also suggested that this increase should extend to those opting for the old tax regime to maintain parity between the two systems. Similarly, raising the standard deduction from Rs 50,000 would further enhance the appeal of the new tax regime.
Introduce additional deductions
Currently, the new tax regime offers two deductions for salaried individuals: standard deduction and National Pension System (NPS) contributions by the employer. To make the new regime more attractive, more income tax deductions should be included. Allowing deductions under sections like 80C for employee contributions to the Employees’ Provident Fund (EPF) and 80D for health insurance premiums would widen its appeal. Other deductions, such as interest on housing loans and interest earned on savings bank accounts, should also be applicable under the new regime.
Additional deduction for NPS contributions
The government has been focusing on expanding the reach of the NPS and the new personal tax regime. Currently, the additional deduction for voluntary contributions of Rs 50,000 under section 80CCD(1B) is allowed only under the old tax regime. Allowing this deduction under the new regime would provide taxpayers with additional benefits and encourage higher investment in retirement schemes, aligning with the government’s objective to promote
