Budget 2021: New income tax regime introduced in 2020 may see tweaks

The new income tax regime introduced last year with lower tax slabs is expected to get a longer list of exemptions to benefit taxpayers.

This move is intended to provide respite to the burdened taxpayers and increase net disposable income to boost overall demand.

While major changes in the income tax structure are unlikely, it is possible that the government may make some minor tweaks to provide relief.

The optional tax regime brought in the previous budget had lower tax slabs in comparison to the old structure. Taxpayers were given an option to either choose the new regime with lower tax slabs or the old one with tax benefits but higher slabs. The government is looking to increase its adoption rate among taxpayers.

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The new income tax regime did not pick up the way it was anticipated, so a move to include more exemptions for people who invest in provident fund and other schemes was being considered.

At present, those who opt for the new income tax regime are taxed under lower slabs, but they are not be able to claim deductions for investments under various sections of the Income Tax Act. Additionally, they are also not eligible for standard deduction of Rs 50,000 under the old taxation system.

In the optional regime, individual taxpayers are required to pay 10 per cent tax for income between Rs 5 lakh and Rs 7.5 lakh; 15 per cent for income between Rs 7.5 lakh and Rs 10 lakh; 20 percent for income between Rs 10 lakh and Rs 12.5 lakh; 25 per cent for income between Rs 12.5 lakh and Rs 15 lakh and at 30 per cent for income above Rs 15 lakh.

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