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The recent Union Budget 2025 in India has introduced significant changes to the income tax system, specifically focusing on providing relief to individuals earning up to ₹12 lakh annually. Finance Secretary Tuhin Kanta Pandey, in an exclusive interview with CNBC-TV18, addressed concerns regarding potential tax base erosion resulting from these changes. He confidently asserted that the government is not apprehensive about this, citing the natural progression of individuals into higher tax brackets as their salaries increase. This expansion of the tax base, he argued, would offset any potential losses from the lowered tax rates for lower income earners. The new tax regime represents a deliberate shift towards simplifying the tax system and fostering greater compliance among taxpayers. The increased nil tax slab from ₹7 lakh to ₹12 lakh directly benefits the middle class, a key demographic within the Indian economy. This move aligns with the government's broader political objective of providing tangible relief to this segment of the population, a decision that is clearly positioned as a response to public demand.
The implementation of the new tax structure is expected to result in a substantial ₹1 lakh crore in tax relief for taxpayers. This relief is directly channeled back to the individuals through reductions in their personal income tax liabilities. However, Pandey emphasized the importance of filing tax returns for these rebates to be processed, clarifying that the system's efficiency remains intact despite the significant changes. The government acknowledges that the new regime is a 'political decision and a public choice,' directly responding to the needs and expectations of its citizenry. The success of this approach hinges upon both increased compliance and the effectiveness of the government’s communication strategy to ensure widespread understanding and utilization of the new system. This comprehensive approach aims not only to benefit taxpayers but also to streamline the tax administration process for greater efficiency and transparency.
Further efforts are underway to streamline the tax process even further. The government is actively focusing on simplifying tax collection mechanisms, particularly by rationalizing aspects of TDS (tax deducted at source) and TCS (tax collected at source). This involves raising the thresholds for TDS under various sections. The broader goal is to enhance both efficiency and transparency in tax collection. This commitment to streamlining is not limited to just the collection side. A significant initiative is underway to overhaul the tax code itself. Redundant terminologies and overly complex chapters are targeted for elimination, aiming for a more user-friendly and accessible tax filing system. The potential elimination of terms like 'assessment year' underscores the government's commitment to a fundamental simplification of the tax language, making tax filing a less daunting task for the average taxpayer. This sweeping overhaul underscores the government's long-term vision for a more modern, efficient, and transparent tax system.
The shift to the new tax regime is also being actively encouraged by the government. Pandey revealed that a significant 75% of taxpayers have already transitioned to the new tax regime, demonstrating a positive and widespread acceptance of the reforms. The government expects this number to continue rising with the ongoing benefits becoming more apparent. The overall success of the tax reforms will depend on several factors, including the continued efforts towards simplification, the effective communication of these changes to taxpayers, and the adaptability of the tax administration system in responding to potential challenges that arise during implementation. The success of this budget measure in achieving its stated objectives of simplifying the tax system, encouraging compliance, and delivering tangible relief to taxpayers will be closely monitored in the coming years. The long-term impact on economic growth and social welfare will be a key indicator of the efficacy of this significant tax policy shift.
The success of this initiative, however, is contingent upon several factors. The government's ability to effectively communicate these changes to the public is crucial for maximizing participation and understanding. Equally important is the system's capacity to handle the increased workload resulting from the higher number of taxpayers under the new regime. Furthermore, ongoing monitoring and evaluation of the system will be essential to identify and address any unexpected challenges or shortcomings in the implementation process. The government’s commitment to simplifying tax collection and overhauling the tax code is a significant step towards creating a more robust and equitable tax system. This holistic approach demonstrates a long-term vision for a more efficient and accessible tax framework within India, contributing to its overall economic stability and growth.
Source: Not apprehensive of 'tax base erosion': Finance Secretary Tuhin Kanta Pandey - CNBC TV18