Will there be reduction in tax rates under old regime? Nirmala Sitharaman's response: ‘Not compelling anyone to…'
Nirmala Sitharaman confirmed no tax rate reductions under the old regime, emphasizing that taxpayers can choose between the old and new systems.
Finance minister Nirmala Sitharaman said that there will be no reduction in tax rates under the old regime. Speaking at a News18 event, the minister clarified that the government is not forcing anyone to switch from the old to the new tax regime.
“We are not compelling anyone to move,” she said, highlighting that more 78% of taxpayers have already opted for the new regime. Under the new regime, tax rates have been lowered, and the standard deduction has been increased to ₹75,000 but the old regime remains unchanged.
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"We brought the standard deduction into the new regime after listening to what people wanted," she said.
She said, “I understand the view that some rate reductions in the new system should apply to the old regime, but we have kept the changes specific to the new scheme."
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Emphasizing the government’s goal to streamline the tax system for all, the finance minister said that the intention was to simplify direct taxation further.
Nirmala Sitharaman explained that the government has been working to simplify direct taxation since 2019, adding, “The attempt has been to make the process simpler, which is why a new regime was brought in with lower rates. We gave the option to taxpayers that if they preferred exemptions, they could remain with the old scheme."
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She also noted that while the new scheme initially offered no exemptions, the government added standard deductions to accommodate taxpayer needs, explaining, “In the July budget, we revisited this and further reduced rates for the middle class, while also increasing the standard deduction."
Old tax regime vs new tax regime
Preeti Goyal, Partner at Lakshmikumaran and Sridharan Attorneys, said, “Old tax regime gives the benefits of claiming deduction towards certain exempt allowances such as HRA, LTA, etc. which are incurred in the course of employment. Moreover, the old tax regime grants deductions under Chapter VI-A of the Income Tax Act, which are not available if the individual opts for taxation under new tax regime. Basis computation, for an individual falling in the 30% tax bracket i.e. having gross taxable income > Rs. 15,00,000/-, if the aggregate of exempt allowances and deductions is more than Rs. 4,33,333/-, old regime is tax efficient. For people falling in lower tax bracket i.e. having gross salary up to Rs. 7,75,000/-, new tax regime is certainly better due to higher standard deduction and rebate under Sec 87A, which leads to nil tax liability. In all other cases, a specific analysis needs to be carried out.”
