A case for marginal aid within the new tax regime

One of the proposals that has made Union funds 2023 highly regarded among the many center class is that people and Hindu undivided households (HUFs) choosing the brand new regime in FY 2023-24 and onwards, and having their annual gross whole revenue (GTI) of upto ₹7 lakh, won’t be required to pay any revenue tax, as they’ll have the ability to declare a rebate of ₹25,000 underneath Section 87A of the Income tax act.

However, what if one earns simply ₹10 greater than the annual GTI of ₹7 lakh, i.e., ₹7,00,010?

Consider this instance: A is a salaried worker working with M/s ABC Pvt Ltd, drawing an annual wage of ₹750,010 in FY2023-24. So, his annual GTI, after choosing the brand new regime and claiming the allowable deduction in respect of ordinary deduction of ₹50,000, will come to ₹700,010.

Now, the annual GTI of A exceeds the brink rebate restrict, simply by ₹10 solely however he will be unable to say the rebate of ₹25,000 underneath Section 87A, and his whole GTI of ₹700,010 will turn into taxable on the relevant slab charges within the new regime. The revenue tax legal responsibility of A on this case will come out at ₹26,000. Thus, simply ₹10 of further revenue in extra of ₹7 lakh, forces A to pay ₹26,000 as revenue tax.

Let us work out some extra revenue ranges to check this peculiar paradoxical scenario, symbolizing the regulation of diminishing returns (see desk).

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Graphic: Mint

Based on above calculations, it’s clearly evident that this paradox of incurring of an revenue tax legal responsibility larger than the quantity of revenue earned in extra of ₹7 lakh, within the new tax regime, begins from an revenue stage of ₹7,00,005 and it continues upto an revenue stage of ₹7.29 lakh.

Note that revenue till ₹7,00,004 will probably be rounded off to ₹7 lakh.

In order to keep away from this humorous paradox, the finance ministry ought to deliver a few appropriate modification within the new regime in order to supply marginal aid to such people and HUFs having their respective/ annual GTIs starting from ₹700,005 to ₹7.29 lakh in FY 2023-24 and onwards.

Otherwise, A must ask his employer to scale back his wage in order that revenue after normal deduction will get rounded off to ₹7 lakh to pay no quantity as revenue tax.

Currently, marginal aid is being supplied to taxpayers having their common revenue beneath the fundamental exemption restrict of ₹3 lakh within the new regime. Similarly, marginal aid can also be supplied in circumstances of surcharge applicability in respect of incomes exceeding ₹50 lakh and ₹1 crore, respectively.

Thus, bringing a few comparable provision of marginal aid in respect of such taxpayers, having their annual gross whole incomes of ₹700,005 and upto ₹7.29 lakh and choosing the brand new tax regime, will rectify the above paradoxical anomaly, such that, on the revenue ranges between ₹7,00,005 and ₹7.29 lakh, the revenue tax payable will get restricted to the quantity of revenue which exceeds ₹7 lakh solely, and never larger than that.

Mayank Mohanka is the founding father of TaxAaram India, and a accomplice at S M Mohanka & Associates

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