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Minister says new tax regime to leave more disposable income

Sujit Talukder Monday, March 16, 2020
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Budget 2020 has ushered a new tax regime by introducing section 115BAC in the Income Tax Act, 1961 which gives an option to an Individual and HUF taxpayer to pay lower or concessional rate of income tax if such a taxpayer forgoes certain exemptions and deductions.

This has raised apprehension about whether the government intends to disincentivize the savings of taxpayers since the new exemption free tax regime does not allow any deduction for any investment in many avenues viz., PPF, EPF, NSC, etc. Even deduction for payment of insurance premium is ineligible under the new tax regime. 

Hence questions were raised on the exemption free new income tax regime. In the Parliament, it was specifically asked -

(a) Whether the Government plans to move towards an exemption free income tax regime and if so, the details thereof and the reasons therefor;
(b) Whether removing exemptions will not dampen life insurance products as well as equity-linked saving scheme of mutual funds;
(c) If so, the details thereof and the corrective steps taken in this regard.

In reply, the Minister of State for Finance Anurag Thakur replied as follows-

(a) The Hon’ble Finance Minister while presenting the Union budget for the financial year (FY) 2015-16 stated that the deductions and incentives given to corporate taxpayers under the Income-tax Act, 1961 (the Act) will be phased out over four years while simultaneously reducing the tax rates. It was also stated that this will lead to making our industry competitive, reduce tax litigation and prevent revenue loss.

2. Further, the Finance Act, 2016, inter-alia, provided a sunset date for the existing profit linked deductions under the various provisions of the Income-tax Act, 1961 (the Act).

3. In continuation with the stated policy, the Taxation Laws (Amendment) Act, 2019 (TLAA) inserted section 115BAA and section 115BAB to the Act to provide for a concessional tax rate of 22% for existing domestic companies and of 15 % for companies set up on or after 01.10.2019 engaged in the manufacture or production of article or thing or research or distribution in relation thereto and which commence manufacturing or production by 31.03.2023, subject to certain conditions including that they do not avail of any specified incentive or deductions. It has also been provided that the domestic companies opting for the concessional taxation regime shall not be required to pay any Minimum Alternate Tax.

4. The Finance Bill, 2020 has also proposed to insert section 115BAC to the Act to provide an option to individual and Hindu Undivided Family (HUF) to pay taxes at reduced rates provided that they do not avail specified incentives or deductions and meet certain conditions. The individuals or HUF opting for the said concessional tax regime will also not be required to pay Alternate Minimum Tax (AMT).

5. On the lines of the reduction in corporate tax rates, the Finance Bill, 2020 has also proposed to insert section 115BAD to the Act to provide a concessional taxation regime for co-operative societies, wherein they can opt to pay tax at the reduced rate of 22 % if they do not avail of any specified incentives or deductions. The co-operative societies opting for the said concessional taxation regime will also not be required to pay AMT.

(b) and (c) The new regime proposes to leave more disposable income in the hands of individual taxpayers which he can consume or invest as per his choice.


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