FM Nirmala Sitharaman's Budget goal: Lower rates, simple structure

Nirmala Sitharaman
Finance Minister Nirmala Sitharaman on Sunday said the new tax regime proposed in her second Budget would ultimately lead to lower rates with simple structure.


Dismissing criticism that the new regime would not be largely beneficial to the assessees, she said, “eventually this should lead to a system where people are taxed at the lowest possible rate and are given a simple system. I am starting a scheme, which will eventually end there. For this, I’m not forcing people.” She was speaking to the media in an informal interaction a day after presenting the Union Budget in Parliament.


The FM disagreed with experts who termed the new tax regime complex and unavailing. She said the new scheme would benefit some taxpayers falling in certain brackets, if not all.


“…because the income tax cuts are deeper in the new scheme, we believe a taxpayer from a particular income bracket will be much better off coming into the new system. And in the new system, which however much I repeatedly say has no exemptions, there are some exemptions that we have allowed,” Sitharaman said.


Industry experts, however, argued that two tax regimes with optionality for personal tax, as in case of corporate taxes, only make the structure more complicated. Analysts sent out data to explain how the new tax regime would not be beneficial for those who take exemptions.


But the minister said, “I believe many of the calculations have probably not taken into account the exemptions which have been allowed in the scheme.”


Sources in the finance ministry said 53 million out of a total of  57 million taxpayers in 2018-19 had claimed exemptions of less than Rs 2 lakh. In other words, only 4 million or less than 10 per cent taxpayers took exemptions of more than Rs 2 lakh.


Analysts based their analyses on those claiming deductions in the range of Rs 4 lakh to 5 lakh, which is a small proportion of the taxpayer base. 


Archit Gupta, founder of Cleartax, said, “With the optional new regime, taxpayers will have to evaluate what works better for them. Those committed to long-term savings and investing via 80C may be discouraged and this may likely demotivate them from investing in tax-saving asset classes.”


Among others, Biocon CMD Kiran Mazumdar- Shaw tweeted that removal of exemptions and dividend distribution tax would hurt the individual taxpayer, impacting consumer spending.


Ajit Mishra of Religare Broking said the widely expected personal income tax cuts had come in with lots of caveats, leaving no major impact.


To a query that removal of exemptions would hit insurance companies, Sitharaman said the government was giving more money to the people and it’s up to them to choose a product.

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