Budget 2020 gives Income Tax payers the option to choose a lower tax regime if they give up all tax exemptions. Leaving aside the debate over whether the new tax regime reduces taxes, the very idea of removing exemptions is bad economics. Tax exemptions are an important policy tool for the government to nudge citizens to adopt economically significant habits, especially that of saving. This savings pool is crucial for both government and private investment. Exemptions can also be used to stimulate particular sectors of the economy, such as housing or medical insurance.
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