The Government has introduced the Incentive Tax Scheme effective April 1, 2020 under Section 115BAC of the Income Tax Act 1961. This is the first step taken to finally move towards a tax regime that has a low to moderate tax rates with no exemptions and deductions. “However, based on reports, it appears that the Incentive Income Tax Scheme is not very popular and very few individual taxpayers have opted in,” EY noted.
According to EY, in Budget 2023, the Incentive Income Tax Scheme could become more attractive to individual taxpayers in the following ways:
first. EY proposes a new Incentive Income Tax Scheme, whereby the tax tables are revised and up to Rs 50,000, tax-free. Also, the 30% income tax floor rate will be worth over Rs 20 lakh instead of Rs 15 lakh. The suggested changes are listed in the table below:
2. Allowed standard deduction of Rs 50,000
3. The benefit of section 80C/CCC/CCD/D deduction will be provided up to Rs 2.5 lakh. However, it should be limited to savings (including PPF) & qualifying life insurance products, home loan interest rates (currently governed by section 80C), pension policies (currently regulated by section 80C). covered by section 80CCC), employee/self-contributing to the New Retirement Plan (currently covered under section 80CCD(1)/(1B) and Mediclaim coverage (currently covered under section 80D).
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According to EY, although the current scope of section 80C is very broad and covers a wide range of insurance, savings, spending etc. Under the proposed new Incentive Income Tax Scheme, this section can be reduced to PF /PPF, qualified life insurance products and home loan interest rates.
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EY believes that regardless of income level, social security is required. “There is no universal social security benefit that is available to all Indian citizens, regardless of income level. In this view, middle- and high-income earners need to ensure their own security. them,” EY stated. “The tax deduction results in a much lower cost/expenditure for the Government in providing that benefit without significantly affecting the subject of the Preferential Tax Scheme which is subject to a lower tax rate that is not exempt/deductible,” it added.