The government wants to eventually move to a simpler tax structure, but has not set a timeline to do away with the various exemptions available for individual income tax payers and completely move to the new system, Finance Minister Nirmala Sitharaman said on Friday.
"Commencing from the corporate tax rate reduction and now coming also with income tax rate reductions simplification, we have clearly shown the government's intent to move towards a simplified taxation regime and that is why we have also made it very plain, not only rate reduction, but also removal of all kinds of exemptions," said Sitharaman.
In the Budget presented on February 1, Sitharaman announced new lower income tax slabs for individuals earning up to Rs 15 lakh per annum. The tax payers who switch to the new tax slabs, however, will have to forego the various exemptions and deductions available. Currently tax payers can avail tax exemptions on home loan principal and interest, public provident fund, insurance premiums, pension funds among other things. Tax payers can chose to switch to the new regime or stick to the existing one, for now.
The minister told reporters that this year they will study the tax payers response to the new system.
"Eventually, we want to have a income tax framework for India, which will be simple, rates come down to the minimum and easy to comply with. I am not forcing anybody, I have given an alternative and we should watch this year how many are comfortable to move here, understand it and based on that take a call next year, to see how best we can move further forward," Sitharaman said.
The minister reiterated that the government wishes to decriminalise laws, including Goods and Services Tax and income tax.
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"We started with the Companies Act earlier. We will look into Income Tax Act also in this regard. We want to eventually make it possible that for civil offences, we don't treat it as criminal offence. To that extent, there will be continuous steps taken," said Sitharaman.
In the budget, the bank deposit insurance was raised to Rs 5 lakh from earlier Rs 1 lakh—a move taken to shield depositors in case a bank were to fail.
The finance ministry has also once again begun work on the contentious Financial Resolution and Deposit Insurance Bill, which had earlier been withdrawn.
"It was once introduced and withdrawn for some reasons. We have begun work on it again. I don't know when I will introduce it, but we are working on it," said Sitharaman.
The FRDI bill had proposed to create a financial framework for overseeing financial institutions in case of insolvency.
It was withdrawn after the proposed "bail-in" clause was opposed by many.
