People Earning Rs 5-7 Lakh Better Off In New Tax Regime, Says Finance Secretary

Finance Secretary TV Somanathan said the new tax regime is more beneficial for the top and bottom income brackets.

Finance Minister Nirmala Sitharaman raised the entry-level taxable income to Rs 3 lakh a year under the new tax regime, and made those earning up to Rs 7 lakh per annum eligible for rebate. That may prompt a segment of taxpayers to migrate to the now default regime as their tax liability is nil.

"It's difficult to say which brackets exactly, but I think [among] those whose income is in the range of Rs 5–7 lakh (per annum)... I expect a very large majority to shift," Somanathan told BQ Prime in a post-budget conversation.

"The second group is beyond Rs 7 lakh till up to Rs 12–15 lakh per annum," Somanathan said. "I feel a substantial portion may shift, especially the breadwinners in that category."

This category of taxpayers is often compelled to bear many household expenses, leaving less room to invest in the maximum possible tax-saving or investment options, he said.

"The amount, which is projected as savings in financial newspapers, is difficult for a person whose income range is of Rs 50,000–75,000 per month... They have personal expenditure and I expect many of them to shift because they'll be considerably better off in the new system."

The ability to save increases for those in the middle slabs with an income of Rs 12 lakh per annum, Somanathan said, leaving them comparatively less motivated to migrate.

The finance secretary also expects that those in the highest slab to be drawn to the new regime as the surcharge was lowered.

Sitharaman said in her budget speech that the highest tax rate was 42.74%, among the highest in the world. She reduced the highest surcharge rate from 37% to 25% in the new tax regime, effectively leaving the maximum tax rate at 39%.

Other sweeteners in the new regime include a standard deduction of Rs 50,000; and a deduction of up to Rs 15,000 from family pension.