New I-T regime may see more tweaks

financialexpress.com:

Any further shift among the taxpayers to the concessional personal income tax regime from 60% reported so far will require further tweaks to make it more attractive, government sources said on condition of anonymity. A few options in this regard are under consideration, they said, but hinted that these steps might get deferred beyond the interim Budget on February 1.

Tax experts say the government might have to increase the threshold for the highest PIT rate of 30% –which now kicks in at Rs 15,00,000 – to at least Rs 20,00,000. Alternatively, the marginal rate itself may be reduced to 25%.

These changes would result in significant tax savings of under the exemption-less regime, which was modified in the FY24 Budget to encourage taxpayers to discard the old regime, which allows sundry exemptions and deductions. However, any marginal increase in rebates – tax liability under the concessional regime is nil for annual income up to Rs 7.5 lakh thanks to rebates and the standard deduction of Rs 50,000 – won’t make any big difference, the experts reckon.

A higher threshold for the marginal tax rate would be suitable for a progressive income tax system, than reducing the highest tax rate, because the former benefits the low-income taxpayers more in relative terms (see chart).

If the Budget (either interim of the main) increases the threshold to Rs 20,00,000, it will help an income tax assessee earning above Rs 25,00,000 a year save Rs 52,000 more. Similarly, an assessee earning Rs 20,00,000 a year will be able to save an extra Rs 46,800 a year, an analysis by FE shows. Those earning Rs 10,00,000 a year will see no change in the tax outgo.

If the threshold is increased to Rs 25,00,000 a year, an assessee earning above Rs