The new tax regime will not become popular unless the government introduces incentives for its uptake, said revenue secretary Tarun Bajaj on Saturday, adding that it was high time for the tax laws to be changed in India.
“The new tax regime will not take over unless we disincentivize the old regime and incentivize the new regime with no exemptions. And unless we do that, we will not be able to simplify the tax rates,” he said, while addressing the second TIOL National Taxation Awards 2021 and TIOL Tax Congress. The event was attended by Justice M.R Shah (Supreme Court Judge) and Member of Parliament Sushil Modi, among others.
The new tax regime, which became applicable from FY2020-21, was meant to simplify tax. Unlike the old tax regime, the new tax regime doesn’t allow taxpayers to benefit from any exemptions or deductions. As a result, in some cases, the old tax regime is more beneficial for the taxpayers. However, those in the lower tax brackets stand to benefit if they stick with the new tax regime as it comes with lower slab rates.
While explaining how the new tax regime works, Bajaj highlighted that it was important to simplify the tax system and remove exemptions that have been around for several decades.
“The first Income Tax Act I think came in 1860. If I'm not mistaken the next one came somewhere in the early 1900s. And the third one came in 1961. Perhaps this is the time that we should write the fourth one. Some attempts have been made in the past, and we have not succeeded in that. I think we need to make a sincere attempt now. And for that I seek assistance from all who say that there are certain provisions in this Act which should go away which grants unnecessary benefits to certain class of people,” said Bajaj.
He added that a couple of years ago, corporate tax rates were reduced to 22 per cent from 30 per cent which was a major step taken towards the simplification of the tax laws.
Bajaj also highlighted the pain and dilemmas the government goes through while framing tax policies.