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Finances 2023 revenue tax: Why concessional tax regime just isn’t common amongst taxpayers; 3 steps wanted

Finances 2023 revenue tax expectations: The concessional tax regime (“CTR”) was launched within the Finances 2020 (efficient kind FY 2020-21) with an intent to put off a bunch of exemptions and deductions below the Earnings Tax Act, 1961 (“Act”) as a way to cut back the compliance burden for particular person taxpayers as additionally the executive burden for employers and tax authorities. It was additionally inferred as a primary step for ultimately shifting in direction of a tax regime of low/average tax charges with out exemptions & deductions.
The CTR gives particular person taxpayers with an choice to pay taxes at diminished slab charges by forgoing sure deductions and exemptions that are in any other case obtainable below the present tax regime. A comparability of the slab charges below each regimes is enclosed.

Why is not the CTR common/extensively opted for by particular person taxpayers?
Although the tax charges below the CTR are decrease as in comparison with the present regime, nevertheless, foundation the variety of taxpayers choosing the CTR, one can infer that the discount in tax charges just isn’t enticing sufficient for people to forego their exemptions and deductions. For example, take the case of a person with an annual revenue above Rs 15,00,000, the CTR is simply helpful if the mixed exemptions and deductions not allowable below CTR are lower than Rs 2,50,000.
If one have been to think about solely a few of the fundamental exemptions and deductions (amongst others) availed by most salaried people in India i.e., 80C, 80D, normal deduction (Rs 50,000) and HRA exemption – these would typically add as much as way more than Rs 2,50,000 thereby making the CTR educational. That is defined by the use of the desk under:

The edge of Rs 2,50,000 price of deductions and exemptions (mentioned above) additional reduces because the annual revenue reduces under Rs 15,00,000. e.g., For a person having an annual revenue of Rs 7,50,000, the CTR is useful provided that the mixed exemptions and deductions (which they provide up below the CTR) are lower than Rs 1,25,000 (which in most taxpayers just isn’t the case given the elevated consciousness and adoption by Indians in direction of insurance coverage merchandise (well being and life) and investments – PPF, ELSS, and many others.).
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How can the CTR be made more practical?
1. Change in slab charges below CTR as supplied under:

2. Retain the usual deduction of Rs 50,000 below the CTR
3. Introduce a mixed deduction of as much as Rs 2,50,000 within the CTR below the next:

  • 80C – Provident fund (together with PPF) & qualifying life insurance coverage merchandise (To make clear, whereas the present scope of part 80C could be very broad and covers a gamut of insurance coverage financial savings, expenditure, and many others., below the proposed CTR, its scope could also be diminished to PF/PPF and qualifying life insurance coverage merchandise)
  • 80CCC – Pension insurance policies
  • 80CCD(1)/(1B) – Staff / self-contribution to NPS
  • 80D – Mediclaim Insurance coverage
  • Curiosity on housing mortgage

The rationale for retaining the above is the absence of a common social safety profit to all residents of India, whatever the degree of revenue in view of which middle- and high-income earners want to offer for their very own safety.
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Nonetheless, lastly, the decision of the day could also be to progressively shift in direction of a unified tax regime with decrease tax slab charges and particular/pertinent exemptions and deductions (as an alternative of getting two totally different tax regimes) which is able to go a good distance in lowering the compliance and administrative hassles for each taxpayers and the tax authorities.
(Surabhi Marwah is Tax Companion – Folks Advisory Companies at EY India. Uday Bhartia, Senior Tax Skilled, EY India contributed to the column. Views are private)