News

Published: August 19, 2023
Updated: August 19, 2023

New Tax Regime Gains Popularity: Over 55 Million Taxpayers May Opt for It

The adoption of the new tax regime has surged, with an estimated 55 million taxpayers expected to choose this system for the current financial year, based on preliminary figures provided by the revenue department. This change primarily appeals to individuals with a taxable income of up to Rs 7 lakh, according to a senior government official.

Enhancements in the New Tax Regime:

In the 2023-24 Budget, significant modifications were introduced to the new tax regime, rendering it more enticing for taxpayers. The updated regime aims to simplify taxation by eliminating specific deductions and exemptions, while providing a lower tax rate. Although this regime had faced challenges since its inception in the financial year 2020-21, its attractiveness has grown remarkably.

Shift Towards Simplicity and Flexibility:

Young taxpayers, particularly those earning around Rs 7.5-8 lakh or even up to Rs 10 lakh, are inclined towards the new tax regime due to its flexible and straightforward nature. Many are open to experimentation to determine its suitability. Additionally, taxpayers have the option to switch back to the old regime in the subsequent financial year.

Anticipated Figures and Assessments:

The exact number of individuals opting for the new tax regime will only become clear in the next assessment year (2024-25), reflecting the earnings and tax liabilities of the current financial year.

Income Distribution and Filing Trends:

Data from the income-tax department for FY23 reveals that around 48.4 million taxpayers had a taxable income up to Rs 5 lakh. Additionally, over 11.2 million fell within the Rs 5 lakh to Rs 10 lakh income range, while 4.7 million had incomes between Rs 10 lakh and Rs 20 lakh. Those earning between Rs 20 lakh and Rs 50 lakh constituted 2 million individuals, while 380,000 earned between Rs 50 lakh and Rs 1 crore. Merely 260,000 taxpayers belonged to the category earning above Rs 1 crore.

The number of income-tax returns filed reached a record high of 67.7 million in AY 2023-24, marking a 16 percent increase compared to the previous year. First-time filers contributed to this surge, with nearly 5.37 million new ITRs submitted.

Changes in Tax Exemptions:

The 2023-24 Union Budget brought about alterations in the optional exemption-free tax regime governed by Section 115BAC of the I-T Act. This modified concessional tax regime has become the default choice for individual taxpayers. The new regime exempts those with an annual income of up to Rs 7 lakh from taxation. It also introduces a standard deduction of Rs 50,000 and raises the basic exemption limit to Rs 3 lakh.

Implementation and Effects:

Following its implementation on April 1, the new tax regime prompted employers to collect information from employees regarding their preferred tax regime for accurate tax deduction. Those who failed to provide their preference would undergo TDS deductions based on the revamped regime.

Shift in Savings Patterns:

This growing preference for the new tax regime mirrors a broader shift in investment and savings behaviours, particularly among the new generation. Traditional tax-saving tools are becoming less prominent, as individuals explore alternative avenues for savings. Revenue Secretary Sanjay Malhotra stated that over 50 percent of taxpayers are expected to migrate to the new regime.

The shift towards the new tax regime highlights taxpayers' changing preferences for simplicity, flexibility, and the pursuit of alternative savings strategies. The government's efforts to streamline taxation and provide an appealing framework seem to be paying off, as a significant number of individuals are anticipated to opt for this regime.