New income-tax regime needs tweaks to get more attractive
In a move to provide significant relief to the individual taxpayers and simplify the income-tax law, the government had introduced an exemption-free income-tax regime in FY21 as an option for taxpayers. However, it needs to be tweaked to be made more attractive for the taxpayers, opined revenue secretary Tarun Bajaj.
The new regime needs to be rewritten to make it better than the old one. Under the new regime, the exemption limit is Rs 2.5 lakh while in the old scheme you don’t have to pay any taxes up to Rs 7.5 lakh. Since, many people come within this income bracket, they have no incentive to move to the new tax regime.
Bajaj, who will retire on Wednesday, November 30, has said that the tax structure has to be stabilised and more reforms are needed in the direct and indirect tax regimes. There is a need to “fix the capital gains on all fronts,” Bajaj told Economic Times in an interview.
The rationale behind doing so would be a reduction in litigation.
Apart from direct and indirect taxes, Goods and Services Tax (GST) also needs to be rationalised, number of slabs need to be reduced and there is a need for relook at exemptions. “We are reaching a stage in our economy where we need to give complete stability to the tax structures on both sides,” the revenue secretary suggested.
Issues on the direct tax side
On the direct taxes side, (there are) about two, or three issues. One is to fix the capital gains on all fronts. Second is the personal income tax and the third is to rewrite the code to simplify it. We’ve done a bit of a journey on this, but I think some bits are still left out, he added.
On the concerns of industry and businesses on the tax structure being complicated, Bajaj said, “We have done quite a bit; some complaints would be there, some genuine, some not. We are now trying to provide one income-tax return form in place of six.”
Meanwhile, the central government seems to be moving towards rationalisation in long-term capital gains tax structure. The Union Finance Ministry is looking at rationalising LTCG tax structure by bringing parity between similar asset classes and revising the base year for computing indexation benefit to make it more relevant.
However, the revenue secretary shared that he is not sure of what may come in this budget but there is a need to simplify it.
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