The government introduced the Concessional Tax Regime effective 01 April 2020 under Section 115BAC of the Income-tax Act, 1961. It was the first step taken to eventually move towards a tax regime of low to moderate tax rate without exemptions & deductions. “However, based on press reports, it appears the Concessional Income Tax Regime is not very popular and very few individual taxpayers have opted for it,” notes EY.
According to EY, in Budget 2023, the Concessional Income Tax Regime can be made more attractive for individual taxpayers in the following ways:
1. EY proposes a new Concessional Income Tax Regime under which the tax slabs are revised and up to Rs 5 lakh, there is no tax. Additionally, the 30% income tax slab rate should kick in above Rs 20 lakh instead of Rs 15 lakh. The proposed changes are listed in the table below:
2. Allow standard deduction of Rs 50,000
3. The benefit of section 80C/CCC/CCD/D deduction should be provided up to Rs 2.5 lakh. However, it should be limited to provident fund (including PPF) & qualifying life insurance products, interest on housing loan (presently covered by section 80C), pension policies (presently covered by section 80CCC), employees/self-contribution to New Pension Scheme (presently covered by section 80CCD(1)/(1B) and Mediclaim insurance (presently covered by section 80D).
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According to EY, while the present scope of section 80C is very wide and covers a gamut of insurance, savings, expenditure, etc. Under the proposed new Concessional Income Tax Regime, it can be reduced to PF/PPF, qualifying life insurance products and interest on housing loan.
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EY is of the view that regardless of the level of income, there is a need for social security. “There is no universal social security benefit to all citizens of India, regardless of the level of income. In view of this, middle and high income earners need to provide for their own security,” EY states. “The tax deduction results in much lower outgo/expenditure for the Government in providing for such benefit without significantly impacting the object of Concessional Tax Regime of having a lower tax rate without exemptions/deductions,” it adds.
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