As India prepares for Budget 2025, discussions around simplifying income tax laws are intensifying. One of the key topics is whether the government will merge the old and new tax regimes. Reports suggest that this move could be a significant part of the upcoming budget. Former Finance Secretary Subhash Chandra Garg recently spoke about this possibility in an interview with News24, urging the government to simplify the current tax system for the benefit of citizens.
Current Income Tax Regimes - Old vs New
Currently, India follows two income tax systems. The old tax regime allows various deductions like those for housing loan interest, insurance premiums, and investments. On the other hand, the new tax regime, introduced in 2020, offers lower tax rates but fewer exemptions. Garg pointed out that maintaining two separate systems creates confusion for taxpayers and makes the tax process more complicated. "The finance minister should consider merging the two existing tax systems into a single, unified system," Garg emphasised during his interview.
Potential Benefits of Merging the Tax Regimes
Garg highlighted that the old tax regime remains popular among taxpayers due to exemptions that help reduce the overall tax burden. For instance, deductions on housing loan interest can substantially reduce tax bills, especially for those with large loans. By merging the old and new tax regimes, the government could streamline the process while still preserving key exemptions that benefit taxpayers, ensuring a fairer and simpler tax system.
What’s Next for Budget 2025?
With Budget 2025 just around the corner, all eyes are on Finance Minister Nirmala Sitharaman, who will present her eighth consecutive budget on February 1. The merger of income tax regimes, along with other reforms, could potentially reshape India’s tax landscape, making it simpler for citizens while balancing the benefits across different tax slabs.