Budget 2023: Will New Tax Regime make tax 80C redundant?
2 min read 01 Feb 2023, 04:41 PM ISTThe Union Budget has proposed to make the new income tax regime as the default option.
PremiumIn Budget 2023, Finance Minister Nirmala Sitharaman has brought cheer to the middle class by introducing widespread changes to the income tax structure, by changing the slabs, raising the rebate level and providing incentives to those falling under higher brackets. However, there is a catch! The Budget incentives can only be enjoyed by those who opt for the new tax regime, which was introduced in Union Budget 2020.
The new tax regime will now be the default option given to the salaried employees and the proposed hike in rebate from current ₹5 lakh to ₹7 lakh will not be given to those opting for the old tax regime which constitutes tax rebate under Section 80C.
"Currently, those with income up to ₹5 lakh do not pay any income tax in both old and new tax regimes. I propose to increase the rebate limit to ₹7 lakh in the new tax regime. Thus, persons in the new tax regime, with income up to ₹7 lakh will not have to pay any tax," said FM Sitharaman.
So, will Nirmala Sitharaman's inclination towards the new tax regime which offers the flexibility to the taxpayer to invest their money as they prefer. With the new scheme, there is no obligatory requirement to invest in tax saving schemes and insurance plans which may not be in alignment with their financial goals. With no exemptions, your total taxable amount will also be higher as compared during the old tax regime.
"Middle class will benefit most from this year's budget. Consumption will increase due to this move and the economy will further boost," Chairman of Boston Consulting Group Janmejaya Sinha stated lauding the Budget.
Experts feel the policy decision to move towards the new tax regime, which may aim to make Section 80 C and tax saving components less lucrative will only reduce people's willingness to invest in financial products and spur expenditure.
“The budget's inclination towards New Income Tax regime will reduce incentive to invest in financial products (including MFs’ ELSS, insurance premium etc). Or, for that matter, even the decade-old housing sector incentives for interest payments will be the least preferred option," Umesh Kumar Mehta, CIO, Samco Mutual Fund stated.
India has always been a nation that believes in saving rather than spending, but the budget will promote spending compared to saving.
"This budget, therefore, has rewritten the rules for financing of savings in India, which will induce expenditures rather incentivise savings," he added. “Whether the lower tax outgo will spur consumption or inspire savings is a moot point. But either way, it will be positive for the economy."
“The government is trying to make Section 80C obsolete with the new tax regime. I would have liked a phased rolldown of 80C. Many investors force themselves to save in ELSS and Term insurance. My concern is that under the new tax regime, this may lead to reduced individual savings. 80C could have been addressed," Anand K Rathi, Co-founder, MIRA Money states.
