Sources said the finance ministry is proposing to review the exemption-free new tax regime soon to make it more attractive to individual income tax payers.
Eventually, sources said, the government aims to set up a system where there are no exemptions and the complicated old tax regime with exemptions and deductions is done away with.
The Union Budget 2020-21 introduced a new tax regime. Taxpayers were given the option to choose between the old regime with various deductions and exemptions and the new tax regime offering lower tax rates without exemptions and deductions.
The objective behind this move was to provide significant relief to individual taxpayers and simplify the Income Tax Act.
When asked about the experience of the new tax regime, the sources said, there are clear indications that those who have exhausted their home and education loans are more inclined to move to the new tax regime as they have a lot to claim. There is no discount.
Sources further said that reducing taxes in the new regime will make the new tax regime more attractive.
A uniform tax regime for corporate taxpayers was introduced in September 2019 by significantly reducing rates and removing exemptions.
Government had announced reduction of Aadhaar Corporate Tax from 30 per cent to 22 per cent for the then existing companies; and 25 per cent to 15 per cent, for new manufacturing firms incorporated after October 1, 2019 and commencing operations before March 31, 2024. Companies opting for these new tax rates would have to forgo all exemptions and incentives.
Under the new tax regime for individual taxpayers announced on February 1, 2020, those with an annual income of up to Rs 2.5 lakh do not pay any tax.
The tax rate is 5 per cent for income between Rs 2.5 lakh and Rs 5 lakh.
In addition, people with an income of Rs 5 lakh to Rs 7.5 lakh will have to pay a lower tax rate of 10 per cent; 15 per cent between Rs 7.5 lakh and Rs 10 lakh; Between Rs 10 lakh to 12.5 lakh 20 per cent; Between Rs 12.5 lakh to Rs 15 lakh 25 per cent; and 30 per cent above Rs 15 lakh.
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)