• Notification Date: 01.02.2022
• Notification No: N/A

40% Taxpayers plan to choose the New Income Tax Structure if the Tax Rate reduces by Additional 2-5%

The taxpayers are expecting a reduction in the Income-tax rate by an additional 2-5% in Budget 2022. According to a survey conducted by LocalCircles, 40% of the taxpayers are going to switch to the new income tax structure in that case.

The government provided the taxpayers with the opportunity to opt for a new tax regime in FY20-21. According to the new regime, the taxpayers are eligible to pay tax at a lower rate. But the condition is that they have to refrain from some exemptions and deductions. If they do not agree to this condition, they have to pay the tax at the normal rates and they can avail themselves of the exemptions and rebates.    

Some of the exemptions that are not available under the new tax rate regime are Leave Travel Allowance (LTA), House Rent Allowance (HRA), Conveyance Allowance, and Daily expenses in the course of employment. Some other allowances are Relocation allowance, Helper allowance, and Children education allowance. Deductions will be made under Section 80TTA and 80TTB is the interest available from Savings Accounts or Deposits. The tax deduction will be made on entertainment allowance, interest will be charged on home loan for self-occupied or vacant properties u/s 24 maximum deductions of Rs.2 lakhs as mentioned under Section 32AD, 33AB, 33ABA, 35(1)(ii), 35(1)(ii)(a), 35(1)(iii), 35(2AA), 35AD and 35CCC under the Income Tax Act.

If the income of an individual is high enough, then it is better to choose the old tax regime. It offers several investment opportunities to the taxpayer, such as exemptions and deductions like PPF, ELSS, and Mediclaim. There are no obligatory investment requirements in tax saving schemes and insurance plans under the new tax regime.

The new regime is beneficial for the taxpayers who prefer to make low investments. The new income tax regime offers seven income tax slabs at a lower rate. The new regime will be appropriate for those taxpayers who are interested in investing less amount in tax-saving schemes.

The taxpayers had been demanding a lower rate of income tax for the last 3 years. The middle-class taxpayers had no relief when the corporate taxes were reduced in Budget 2020.

According to the survey, 37% of the respondents said that they would shift to the new income tax regime if the tax rate would be reduced by a further 2-5%. In the survey, 28% of the respondents expressed their eagerness to continue with the old income tax regime. 13% already has switched to the new rate structure. In the survey, 19% of the respondents expressed no opinion at all.

On an average of the whole survey, 40% of the respondents expressed their interest to switch to the new income tax regime if the tax rate gets reduced by a further 2-5%.

Out of the 28,000 respondents, 47% demanded the Budget 2022 to focus on health matters and have mentioned the area that seeks attention for capital allocation.

Another 64% of the respondents voted that Budget 2022 should focus on the development of roads and highways or agriculture.