Section 115BAC containing the alternative tax slab regime sans deductions and exemptions could well be the default option as confidently claimed by the Finance Minister Nirmala Sitharaman in her budget 2023-24 speech in the Lok Sabha. For, it has now (from the assessment year 24-25) irresistibly more attractive vis-à-vis the slab rates prescribed by the annual Finance Act.
The rates under it are lower than the Finance Act rates all the way. If one has taxable income not exceeding Rs 7 lac, of course he need not bother about racking his head as to which regime he should opt for thanks to the rebate under section 87A that now insulates all those persons steering clear of this mark from income tax liability.
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The tax-free threshold under the Finance Act is Rs 2.50 lac but under section 115BAC it is Rs 3 lac. Income in excess of Rs 2.50 lac but not exceeding Rs 5 lac gets taxed at 5 percent under the former but under the latter income between Rs 3 to Rs 6 lac gets taxed at 5 percent.
Under the Finance Act, the tax rate on income between Rs 5 lac and Rs 10 lac goes up steeply to 20 percent whereas under the default scheme, the income between Rs 6 lac and Rs 9 lac, gets taxed at 10 percent and income between Rs 9 lac and Rs 12 lac gets taxed at 15 percent and 20 percent kicks in only at the Rs 12 lac to Rs 15 lac stage. Under the Finance Act, the maximum marginal rate of 30 percent kicks off at the Rs 10 lac stage whereas under the default scheme 30 percent tax is payable only on the income in excess of Rs 15 lac.
Thus the die is cast----there is bound to be a wholesale switch to the default regime by as many as 80 percent of the taxpayers. And this figure has been trotted out by no less a person than the former finance minister P. Chidambaram, a trenchant critic of the Modi government in an interview to India Today channel. The 20 percent clinging onto the old regime would be those who claim section 80C (prescribed savings ), section 80D (health insurance), section 24 relating to interest on home loan etc. to the hilt. Senior citizens are not going to miss the section 80TTA deduction of Rs 50,000 on their interest income now that the tax rates under the default scheme are decisively more benign.
Thus the Finance Minister has moved closer to her ideal of exemption free regime in return for softer rates of tax. Insurance companies are however not amused as life insurance tax benefit under section 80C and health insurance tax benefit under section 80D were their marketing pitch. It is true that tax-oriented savings and insurance schemes might be the casualties in the wake of the tectonic shift away from tax-oriented exemptions for partaking in these schemes.
At a more sublime level, the paradigm shift spells parity of treatment. Long term capital gains generally are taxed at the rate of 20 percent. But short-term capital gains from bourses on shares are taxed at 15 percent and long term at 10 percent after a generous exemption of Rs 1 lac. The salaried class in particular and the non-investing class in general had been chafing at this blatant discrimination. The finance minister must be complimented for levelling the playing field.
Senior citizens have got their due from the budget 2023. Not only they are going to benefit from the low default tax rates but can also park additional funds in senior citizens savings scheme (SCSS) and Monthly Income Scheme (MIS) of the post office. The cap of Rs 15 lac under SCSS has been generously doubled to Rs 30 lac and under MIS has been doubled from Rs 4.5 lac to Rs 9 lac for single accounts and from Rs 9 lac to Rs 15 lac for joint accounts. Now they don’t have to hanker after avenues some of which turn out to be risky. At the autumn of their lives, they are not going to miss terribly the various deductions under chapter VI-A now that the slab rates themselves are agreeably low.
—The author, S Murlidharan, is a CA by qualification, and writes on economic issues, fiscal and commercial laws. The views expressed are personal.
Read his previous articles here
(Edited by : C H Unnikrishnan)
