Union Budget 2020 India: The new personal income tax slabs would benefit a large section of taxpayers as nearly 90% of return-filers do not avail themselves of exemptions of over Rs 2 lakh, revenue secretary Ajay Bhushan Pandey said on Sunday.
He added that the perception in some quarters that the older regime would be beneficial for most taxpayers is wrong. The ground reality is that all exemptions are fully utilised by only a small section of taxpayers, he said.
Pandey said it was difficult to estimate how many taxpayers would switch to the new regime as many factors played a part, including new salary structure that employers would design.
In an interview with FE, the official also said trends in advance tax payments by companies suggest that nearly 90% of them have opted for the new corporate tax regime announced in September.
Quoting data available with the government on PIT, Pandey said 5.3 crore out of total 5.78 crore income tax filers in financial year 2018-19 claimed exemptions/deductions of less than Rs 2 lakh. In other words, less than 10% of taxpayers claimed exemptions above `2 lakh. Also, only 3.8 lakh taxpayers used exemptions above Rs 4 lakh to reduce their tax outgo.
If a deduction of Rs 2 lakh (say Rs 1.5 lakh under section 80C and Rs 50,000 as standard deduction) is availed, the new regime would turn out to be beneficial for individuals earning a total annual income of Rs 13 lakh or above.
“The new regime makes sense for those people who because of some family circumstance, could not avail themselves of exemptions. The earlier system was iniquitous for those taxpayers. Supposed I am earning Rs 7 lakh per annum and my family expenditure is huge, which prohibits me from taking full 80C benefit, then the old regime is detrimental to me,” he said.
The official added that the new regime is specifically beneficial for those who have just joined the work force, and do not have a housing loan or other benefit. The new employee, who might only be contributing to EPFO and spending on health, would opt for the new regime.
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“Another example is those above the age of 60, why does he need to put money in provident fund, why would the person spend on life insurance or housing loan? The individual is perhaps receiving a pension and has certain years of life, he would like to use that money. There was no scope or incentive to avail exemption and the old regime was a not optimal,” Pandey said.
He added that small business owner with an income of Rs 10 lakh or so would also benefit from the new regime as he doesn’t get LTC and other employee benefits like standard deduction of Rs 50,000. Pandey said that it was difficult to estimate how many taxpayers would switch to the new regime as many factors played a part, including new salary structure that employers would design.