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Every year, the government introduces some tax measure or the other, either to lower the tax burden or to ease tax compliance for taxpayers. In Budget 2019, the government introduced pre-filled income tax return (ITR) forms, which helped in making the tax filing process easier. In Budget 2020, it introduced a new optional tax regime, which has lower tax slabs resulting in lower tax liability, though it comes with certain conditions.

The new tax regime provides more flexibility to the taxpayers in terms of where they want to invest. Since taxpayers are not eligible for any tax deduction or exemption under the new tax regime, they are not required to buy specific tax-saving products. However, this aspect has also made the new tax regime less attractive for those who have been availing of deductions and exemptions. With people dealing with financial stress caused by the pandemic, it will be good if a few important deductions are made available in the new tax regime, said experts Mint spoke to.

Let’s understand how the government can provide some relief to the taxpayers under the new tax regime and how the pre-filled forms have helped in making the tax filing process easier.

The new regime

The purpose of introducing the new concessional tax regime was to provide relief to the taxpayers. However, taxpayers who opt for this regime are not eligible for the 70-odd deductions available under the old tax regime.

For a salaried person, the new tax regime will hardly result in any benefit, considering that deductions and exemptions will have to be given up. For example, under the new tax regime, the salaried taxpayer will have to forego the benefit of standard deduction of 50,000. The exemption on house rent allowance (HRA) and deductions under Section 80C up to 1.5 lakh, under Section 80D on health insurance premium up to 25,000, under Section 24 (b) on home loan interest up to 2 lakh and so on will also not be available.

Some of these are taken into account by the old tax regime mandatorily, without the need for extra investment, such as the standard deduction and Employees’ Provident Fund contribution. Moreover, generally people buy health insurance and life insurance (premiums eligible for deduction under 80D and 80C, respectively) for protection and these do not result in extra spending to save tax.

“It is difficult to provide any estimate around how many people have adopted the new tax regime but the impression is the number is lower than expected. The reason is that the new tax regime provides a lower tax rate at the cost of giving up several beneficial deductions and exemptions like house rent allowance, standard deduction, home loan deduction, deductions under Section 80C and so on. A significant part of the employed workforce avail of most of these deductions and, hence, the new tax regime may not appeal to them," said Aarti Raote, partner, Deloitte India, a consultancy firm.

A few taxpayers will benefit from the new regime. “Only few employees, who are earning taxable salary between 5 lakh and 15 lakh and not claiming any tax exemptions or deductions (which appears to be a rarity for Indian middle-class employees), the new tax regime may be a bit beneficial," said Shailesh Kumar, partner, Nangia & Co. LLP, a tax firm.

Experts said that the government should introduce some benefits under the new tax regime in the upcoming budget. “Though the new tax regime has a simplified approach, it does wipe away some essential deductions such as those on mediclaim and life insurance premiums. It may be considered to provide deductions with respect to certain social security benefits under the new tax regime," said Suresh Surana, founder, RSM India, a tax firm.

“Introducing new tax regime is definitely a good idea and was a long-time demand of individual taxpayers, only if certain exemptions and deductions (such as HRA, deduction for home loan interest, deductions under Sections 80C, 80CCD and 80D if not the entire Chapter VI-A) are allowed to be claimed with the new tax slabs," said Kumar.

Pre-filled tax forms

It has been the constant endeavour of the government to encourage more and more people to file their tax. In order to ease the process of tax filing and compliance, the government introduced pre-filled forms in Budget 2019. The tax website provides an option to the taxpayer to have ITR forms pre-filled with standard data for the previous year like name, address, Permanent Account Number (PAN) and Aadhaar number, house property details etc.

The taxpayer can also import last year’s ITR and make changes. “Pre-filled forms save the taxpayer from the trouble of refilling the standard information again. The taxpayer would need to just verify the pre-filled information and make changes as necessary for the current year," said Raote.

The tax department has also signed an MoU with various regulators, including the Securities and Exchange Board of India, and the goods and services tax department, for exchange of information. This will help in providing further pre-filled information.

Including certain tax breaks in the new tax regime will help. Also, ITR forms can be further simplified.

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