The Centre is likely to tweak the list of eligible rebates and exemptions to allow some more categories of financial savings instruments for taxpayers in the optional income tax regime introduced in the last budget.
According to a report by the Indian Express, the emerging view in the discussions in the run-up to the Union Budget is in favour of reducing the tax burden to push more demand by ensuring more disposable income. This is aimed to be done through tax proposals to incentivise the new tax regime rather than any major overhaul in the income tax slabs in the earlier regime.
In several of the representations made before the Budget, demands have been placed to extend the leave travel concession cash voucher scheme, extension of tax benefits for medical expenditure to all taxpayers, a hike in interest rate limits for home loans, and tax concessions for first-time homebuyers in the old tax regime.
While presenting the Union Budget for 2020-21 in February last year, Finance Minister Nirmala Sitharaman had announced the new concessional income tax regime, wherein lower tax rates were introduced, but at the cost of foregoing various deductions and exemptions, including those currently available on EPF contribution, tuition fee payment, principal and interest outgo on home loans, standard deduction of Rs 50,000, and medical insurance premium, among others. The new tax regime co-exists with the earlier tax system, and was made optional for taxpayers.
Under the new regime, an individual is required to pay a 10 per cent tax for income between Rs 5 lakh and Rs 7.5 lakh, and 15 per cent for income between Rs 7.5 lakh and Rs 10 lakh against the existing rate of 20 per cent in the old regime.
There is a 20 per cent tax for income between Rs 10 lakh and Rs 12.5 lakh, and 25 per cent for income between Rs 12.5 lakh and Rs 15 lakh against the existing rate of 30 per cent for each of these categories.
Income above Rs 15 lakh is taxed at the rate of 30 per cent in both the regimes.