New income tax regime: A nudge on income tax mustn’t become a shove

Source: The post is based on the article “A nudge on income tax mustn’t become a shove” published in the Livemint on 3rd February 2023.

Syllabus: GS 3 – Government Budgeting.

Relevance: About the new income tax regime.

News: In the Budget 2023-24, the government introduced a new income tax regime.

About the new tax regime on Personal Income Tax

What are the advantages of the new income tax regime?

a) The new tax regime offers no tax-free gaps to park money, b) It suits persons who cannot gather the documents needed to claim deductions, c) Provide greater liberty on what one can do with their salaries, d) Rise in discretionary income could do economy a favour.

What are the concerns associated with the new income tax regime?

-Loss of revenue: The new tweaks are expected to cost the exchequer around ₹37,000 crore in lost revenue next fiscal year.

-The new income tax regime does not phase out India’s old tax regime.

-Few state-run institutions depend on their tax sops for a chunk of their business would protest against the new regime.

Overall, the new regime will offer a case study in behavioural economics of Indians.