Implementation of New Tax Regime and Its Impact on Direct Tax Revenue

Salaried assessees constitute a significant number in the direct tax population in India. Removal of existing deductions and exemptions causes disappointment especially for the salaried employees and assessees belong to middle income group who took different tax savings scheme.

- Dr. Jaydeb Bera

Introduction:

A tax is a compulsory transfer of funds from the private sector to the government. Among different sources of finance available to the public economy, taxation is a unique source from more than one point of view. Different stakeholders like tax administrators, tax payers have raised concerns about the reduction of tax rate in the tax structure of the Income Tax Act 1961. Direct tax reforms are necessary to increase the number of tax payers, to minimize the burden of tax-payers and to generate more revenue. The introduction of the new tax regime signals a tremendous shift in the tax structure of India. The thrust of the new tax regime is to improve efficiency and equity of the tax system by eliminating almost all deductions and exemptions. The objective of this study is to show the degree of impact on direct tax revenue due to implementation of new tax regime.

Implementation of new tax regime:

The new tax regime system i.e. Section 115BAC was introduced from the financial year 2020-21. This regime introduced concessional tax rates with reduced deductions and exemptions. Section 115BAC was amended in the Budget 2023, and the new regime was made the default regime from the financial year 2023-24.

Source: Budget speech on 1st February, 2025 by Finance Minister, Govt. of India

Tax structure has been simplified by cutting tax slabs. In the financial year 1965-66, the number of tax slabs was ten (10), in the financial year 1975-76 number of tax slabs were nine (9) but in the current financial year number of tax slabs are seven (7). Limit of standard deduction against salaried income is Rs. 75,000. Rebate will be available upto total income of Rs. 12,00,000.

Central Board of Direct Taxes: