As 1st February approaches, individual taxpayers are curious about the budget 2023 and what it has in store for them. One of the major asks from this budget is a simplified tax structure.
In an interview with Moneycontrol, Arvind Panagariya, a Professor of Economics and former Vice Chairman of Niti Aayog, suggested, “It’s time we fixed the personal income tax system and considerably simplified that. And much like what we have done with taxes on corporate profits, we need to end all exemptions or most of them,”
The current tax regime offers a bunch of exemptions and deductions, including standard deductions, chapter VI-A deductions, home loan deductions, etc., which creates confusion and unequal tax burdens for individuals earning the same income. Instead, a simpler, exemption-free option for paying taxes should be implemented.
In an opinion piece for the Economic Times, Panagariya argued that exemptions in the tax system could lead to individuals with the same income having different tax liabilities, which distorts resource allocation and consumption patterns.
He suggests that the upcoming budget should introduce a more effective option with lower tax rates and no exemptions. This sentiment has been echoed by other members of the Economic Advisory Council to the Prime Minister, who has stated that an exemption-less direct tax system would increase revenue, reduce compliance costs and litigation, and broaden the tax base. The Union Finance Minister has also previously stated the government’s intention to move towards a system without exemptions in the long run, but no specific time frame has been set. In 2020, the Union Budget introduced a new tax regime with the option for taxpayers to choose between the old regime with deductions and exemptions or the new regime with lower tax rates and no exemptions. The government is now proposing to review this new regime to make it more attractive for individual income taxpayers.
For any clarifications/feedback on the topic, please contact the writer at ektha.surana@clear.in
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