The finance ministry is considering to raise the present tax-free slab from Rs 2.5 lakh per year to Rs 5 lakh a year.
This is because multiple concerns have come up regarding the burgeoning cost of living due to multi-year high inflation domestically and globally yet the tax burden continues remaining the same.
Multiple experts have cited that it is now the right time to cut the personal income tax rates so that a taxpayer’s disposable income can go up and they can divert more money into making investments, thus reviving the demand cycle.
In the headquarters of the Ministry of Finance, the officials at North Block have reported to be mulling over a plan to revamp the two-year old alternative personal income tax regime and up the tax free slab from the current exemption limit.
A government official privy to the matter has stated that increasing the tax-free slab will pare the tax outgo for assessees, leaving a larger chunk of money with taxpayers to put into different suitable investments, as cited by Business Standard.
It must be noted here that if more taxpayers take use of tax exemptions like Section 80C and Section 80D, their tax liability as per the old personal income tax system will slide lower too. However, not many taxpayers have opted for the alternative tax regime, stated the report.
“Those earning up to Rs 5 lakh shall not pay any tax either in the old regime or in the new regime,” the Finance Minister Nirmala Sitharaman said in 2020.
Last month in Nov 2022, the non-governmental trade association and advocacy group Confederation of Indian Industry (CII) suggested a review of the old regime or personal income tax rates, proposing to apply zero taxes for a slab of up to Rs 2.5 lakh.
The industry body also suggested to cut the rates between Rs 2.5 lakh and Rs 5 lakh from existing 5% to 2.5%.