Sitharaman says new income tax regime lets people decide on consumption, saving

New income tax regime has actually left more money in the hands of the people, Sitharaman said.

Finance Minister Nirmala Sitharaman has said the government should not underestimate the ability of the taxpayer to make decisions on saving and consumption, with the new income tax regime giving them more freedom to choose.

In her Budget presented on February 1, Sitharaman renewed the push for the new tax system which was introduced three years ago but has not found many takers in the absence of exemptions and deductions.

To make it more attractive, Budget 2023-24 has offered lower tax rates and greater simplicity. The government hopes it will help shift the majority of individuals to the new system, which has also been made the default one.

“It (new income tax regime) has actually left more money in the hands of the people, the taxpayers, the households. So over and above what he pays as tax, the money left in his hands are for him to decide what you want to do with it,” Sitharaman said on February 11 in the Capital at the conclusion of a meeting of the Reserve Bank of India’s central board of directors.

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“Why should I underestimate the decision-making ability of a householder who takes care of his family, takes care of the future interests of the household… A person who earns his money is wise enough to know where he has to put his money. He will save, he will cover with insurance himself and his family…I have not discouraged him from doing anything.”

The minister also said the government’s objective through the simpler income tax system was “purely to reduce the tax burden on the middle class”.

The nudge given to the new tax regime has also led to concerns about a fall in India’s savings rate, which could increase the mismatch between savings and investments.

When asked whether this could lead to the worsening of India’s Balance of Payments, RBI Governor Shaktikanta Das, also present at the media briefing, said the external situation is “eminently manageable”.

“…service exports are doing extremely well. Remittances are enough…in fact remittances are something like 27 percent (higher year-on-year) as per the latest data.”

“Merchandise exports there is talk that it is moderating. Yes, there has been some amount of moderation. But I think the annual (merchandise export) target of $400 billion seems to be very much getting achieved by the time we reach March 31. So the Balance of Payments situation is eminently manageable,” the central bank chief added.

Quizzed on the lack of mention of regulation of crypto in the 2023-24 Budget, Sitharaman said there was nothing to add on that front.

She reiterated that a single country could not hope to regulate crypto on its own and that India, as president of G-20, was talking to all countries about whether a standard operating procedure can be created to regulate cryptocurrencies.