FM Nirmala Sitharaman interview | New tax regime the future, old tax regime to stay

FM Nirmala Sitharaman breaks Budget 2023 down in an exclusive interview with Network18.

While giving a boost to the new income-tax regime, the government has set no time frame to phase out the older tax regime that offers popular exemptions and deductions under various sections, said Finance Minister Nirmala Sitharaman, in an exclusive interview with Network18 Group Editor Rahul Joshi.

Sitharaman stressed that the new tax regime offers reasonable tax rates and simpler compliance.

The new tax regime, which offers lower tax rates but minimal exemptions, was introduced in Budget 2020. “The Prime Minister was clear that the tax-payer should know how much they are paying actually and feel the comfort of not paying much and file tax returns from the comfort of their home,” she said. She expects around 50 percent of tax-payers in "certain layers" to switch to the new tax regime voluntarily.

With the new income-tax regime having completed three years, and the FM making big modifications to it, including making it the default regime, there has been speculation that perhaps the old tax regime would be phased out gradually.

The FM said there were no such plans around at the moment. “Indian citizens will make their own choices. It is one thing to say that we are bringing in a better system that is the least complicated and at rates that are reasonable for all levels. It is attractive for compliance and rates. But there is another system going on where so many exemptions have been given that incentivised saving through insurance covers, medical cover, savings for interest earnings and so on. I do not want people to think that I have denied them (these benefits),” she said.

She also refuted the view that the new tax regime would disincentivise savings and investments. “I belong to the school of thought if a tax-payer is left with more money in her hands, I would think she is the best judge to decide where to put her money. They do not need the incentive to run a family, protect them against ill health and save for the future,” she said.

Responding to a question on reducing the peak tax rate for ultra-rich individuals earning over Rs 5 crore a year from 42.74 percent to 39 percent, she said the rationale was that the Indian tax structure should not be seen as such a high-tax rate system. “To take away 42.74 percent tax…does not make our system look fair,” she said.

Is there scope to still bring the taxes down, at perhaps 25 percent in future? The FM said that "eventually, tax rates must be absolutely low and assessee-friendly. Citizens should not be burdened with taxes. But, after the tax base has widened. Wider the base, the lower the tax...collect from those who can pay but collect enough to run all the (government) schemes,” she said while laying down the path for lowering taxes in future.