Revenue Secretary Tarun Bajaj on February 2 said that the government prefers to wait till 2023 and gauge the situation amid the Covid pandemic before deciding on concessions for the salaried and middle class.
The Centre and Finance Minister Nirmala Sitharaman have been criticised for not announcing any relief measures for the country's salaried and middle classes in the Union Budget.
Elaborating on why such concessions were not offered, Bajaj said, "We have the option to provide relief to the middle class and to a certain class of people, but if we do that, the resources and Capex goes down."
"It's difficult to decide whether that is the right thing to do at this hour when we are yet to recover from the pandemic. We could wait for another year to see how the revenues, expenditure and the GDP grows, and then take a conscious decision."
While corporate tax rates remained unchanged this year, Sitharaman announced on February 1 that a concessional corporate tax rate of 15% would be available for one more year, till March 2024, for newly incorporated manufacturing companies.
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The corporate tax rates were slashed to 22% from 30% for existing companies and to 15% from 25% for new manufacturing companies in 2019.
Commenting on this, the Revenue secretary said, "With corporate tax rates reduced a couple of years ago, we had the first return coming in last year and the second return for them coming in this year. We have noticed that bigger companies paying more taxes have actually shifted in AY20 and AY21."
He added that while almost 65% of income has shifted to the new regime, only 16% of assesses have moved to it.
"I anticipate that when we analyse figures for this year, the numbers on both sides would have gone up," said Bajaj.
He also said that when it came to individuals, with both exemption and non-exemption regimes available, people from lower-income groups have been choosing to continue with the older regime because of tax deduction benefits such as 80C and 80D.
"People who have been showing lower income will prefer to stay with the old regime because even if their income is Rs 7 lakh or Rs 8 lakh income per year, with the benefits of 80C and 80D, they may eventually not have to pay any tax," said Bajaj.
Section 80C allows a deduction for the investment made in PPF, EPF, LIC premium, equity-linked saving scheme, principal amount payment towards home loan, stamp duty, and registration charges for the purchase of property, among others.
Under Section 80D, taxpayers are allowed to claim a deduction of up to Rs 25,000 per financial year on medical insurance premiums.
The government, however, is yet to ascertain whether people from higher income groups have moved to the new regime.
"We will get to know whether people with higher incomes have shifted to the new regime only after we analyse the returns which we have not been able to do yet because the deadline to file returns was extended till December," Bajaj said.
The Revenue Secretary added that the government would not incentivise the older regime as they are trying to "wean people" from it.
"We cannot further incentivise the exemptions regime because we want to wean away people from it to the non-exemption regime," said Bajaj.
On a positive note, however, Bajaj lauded the high rate of tax "some people" have been paying. "I am very happy that some of the people are paying 42-43% tax which is a high rate of tax," he said, adding that the high surcharge needs to be rectified.
Elaborating on it, Bajaj said, "For 2019-20, I had 6.30 crore tax returns that were filed in that particular year, and 75% of people filed returns with income less than Rs 5 lakh per annum, 92% people filed returns with income less than Rs 10 lakh."
And for those with an annual income of Rs 8 lakh or Rs 9 lakh end up not paying any taxes because of the deductions available in the older tax regime, he added. "And any incentive that you give, not only goes to somebody who is paying a 42% tax rate but also goes to this class of people," said Bajaj.
The Revenue Secretary also explained that if the exemption limit is raised from Rs 5 lakh per annum to Rs 6 lakh, more people would begin to file returns with their incomes changed to qualify for the exemption and eventually end up not paying any tax.
"I am sure 75% of the people who are now showing their income to be Rs 5 lakh will file returns showing an income of Rs 6 lakh," he said, adding that 96% of non-salaried people are filing returns of less than Rs 10 lakh.
"So we have to expand the taxpayers community in this country and catch them under TDS to finally be able to provide relief to taxpayers. Attempts to move towards it have been made in the Finance Bill and we need to analyse the returns for individuals and the corporate sector to take corrective actions," Bajaj concluded.
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