Budget 2023: Is the new tax regime up for a revamp? Inclusion of these deductions can sweeten the deal

The new tax regime introduced in last year's Budget hasn’t really taken off and a major revamp is on the cards to make it more attractive for taxpayers.

The new tax regime offered more slabs and lower rates. In case a taxpayer opted for it, he had to let go of nearly 70 exemptions and deductions.

Most of the investments that a taxpayer makes in order to reduce the tax burden are not there in the new tax regime. That list includes some of the important ones like house rent allowance (HRA), interest on the home loan, investments made under Section 80C, 80D and 80CCD.

Experts are of the view that some of the deductions linked to investments and social security should be allowed in the new tax regime to make it more attractive for taxpayers.

According to EY, certain deductions up to Rs 2.5 lakh should be allowed and basic exemption limit should be hiked to Rs 5 lakh. It has batted for inclusion of standard deduction of Rs 50,000 as part of the new tax regime.

There is some consensus over the rejig of slabs as well. While some feel that the peak rate should be brought down to 25%, others are of the view that the 30% peak rate should kick in only above Rs 20 lakh against the current threshold of Rs 15 lakh.

A major sticking point is the benefit a taxpayer gets for availing home loans and those paying house rent. After interest rates have gone up, the burden on the taxpayer has gone up in terms of higher EMIs. The new regime doesn’t offer the taxpayer any benefits with respect to his home loan EMIs.

Budget 2023: Everything you need to know

The housing sector is key for economic recovery and has been at the forefront of revival after the pandemic. It has a major employment generation potential as well.

Realty sector has sought interest benefits to the taxpayers to be increased from the current Rs 2 lakh especially on the back of rising inflation and property prices going up.

An increase in the basic exemption limit to Rs 5 lakh will also drive demand as it will put more money hands of the taxpayer and boost demand.

Under the old tax system, income up to Rs 2.5 lakh is exempt from personal income tax. Income between Rs 2.5 lakh and R5 lakh attracts a 5 per cent tax, while that between Rs 5 lakh and Rs 10 lakh is levied with a 20 per cent tax. Income above Rs 10 lakh is taxed at 30 per cent.