Pre-budget outlook: How to make the new tax regime more enticing and simplify compliance
Subscribe to enjoy similar stories. As the budget season approaches, anticipation grows over how the government will balance growth ambitions and fiscal responsibility. A key focus could be reconfiguration of the tax regime that was introduced in 2020 to simplify tax compliance and reduce reliance on exemptions and deductions.
A press release issued on 2 August 2024 showed that 72% of taxpayers who filed their returns by 31 July 2024 chose the new tax regime, up from 67 percent in FY23. While it’s heartening to see the majority of taxpayers moving to the new regime, there’s been a marginal increase of 5 percentage points in FY24 from the year before. While the simplified filing process and lower tax rates are appealing, 28 percent of taxpayers still preferred the old tax regime due to its beneficial deductions and exemptions such as investments in the Public Provident Fund and the National Pension System, house rent allowance, leave travel allowance, and housing loan interest allowance.
This contrast highlights the differing benefits of the two regimes. The new tax regime appeals to those with straightforward finances, while the old tax regime suits individuals leveraging deductions and exemptions for optimised tax payouts. The new tax regime faces challenges that have hindered its widespread adoption.
One of the primary issues is the lack of incentives for savings, a cornerstone of the old tax regime, which encourages long-term financial planning through deductions for investments in instruments such as PPF, NPS, and equity-linked savings schemes. In contrast, the new tax regime does not provide similar encouragement, making it less appealing to those accustomed to leveraging tax benefits for wealth accumulation. With
. Read more on livemint.com
