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    FinMin to consider reviewing exemption-free tax regime to suit the needs of individual taxpayers

    Synopsis

    Under the new tax regime for individual taxpayers announced on February 1, 2020, people with an annual income of up to Rs 2.5 lakh do not pay any tax.

    Old tax regime vs new tax regimeGetty Images
    With an aim to make it more attractive for individual income taxpayers, the finance ministry could soon review the exemption-free new tax regime, sources told PTI.

    In the longer run, the government wants to do away with the complex old tax regime by establishing a new system, devoid of exemptions and deductions.

    A step in the same direction was taken with the introduction of a new tax regime in the Union Budget 2020-21. Taxpayers were given the option to choose between the old regime with various deductions and exemptions and the new tax regime that offered lower tax rates without exemptions and deductions.

    The intention behind the move was to provide significant relief to the individual taxpayers and to simplify the income-tax law.
    On being asked about the experience of the new tax regime, sources told PTI, there are clear signs that people who have finished their home and education loans are willing to shift to the new tax regime as they have no exemptions to claim.

    Sources further said that lowering of taxes in the new regime would make the new tax regime more attractive.

    A similar tax regime for corporate taxpayers was introduced in September 2019 by significantly lowering rates and removing exemptions.

    The government had announced a cut in base corporate tax for then existing companies to 22 per cent from 30 per cent; and for new manufacturing firms, incorporated after October 1, 2019, and starting operations before March 31, 2024, to 15 per cent from 25 per cent. Companies opting for these new tax rates will have to forego all exemptions and incentives.

    Under the new tax regime for individual taxpayers announced on February 1, 2020, people with an annual income of up to Rs 2.5 lakh do not pay any tax.

    For income between Rs 2.5 lakh to 5 lakh, the tax rate is 5 per cent.

    Further, those with an income of Rs 5 lakh to Rs 7.5 lakh have to pay a reduced tax rate of 10 per cent; between Rs 7.5 lakh and Rs 10 lakh 15 per cent; between Rs 10 lakh and 12.5 lakh 20 per cent; between Rs 12.5 lakh and 15 lakh 25 per cent; and above Rs 15 lakh 30 per cent.

    (With PTI inputs)


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