Budget 2020 – Optional Tax Regime and Side Effects.
Its argued that with an option to choose Tax model as per Budget 2020, Individuals may have lower incentives to save which can impact long term savings in India. It augurs well for the Govt, considering we are in relative slowdown times and look to boost consumption.
As against the Wishlist of a few for a New TAX Savings bond, the new option does not incentivize the bonds and all the more, assesses’ are induced towards reduced taxes for no deduction overall.
Much discussed but perhaps not so acknowledged issue of low demand metrics seems to be addressed by the new tax method as it enables citizens to choose rather than forced save for taxes.
Saving habits are already changing with lifestyle changes and digital ways of living.
As per a recent study, there is a marked reduction in Indian savings from erstwhile 36% in 2012 to just about 30% currently.
However, the big question among all is that, whether the tax incidence on lower and lower middle class reduces overall in absolute terms? During these times of slowdown where Govt is constantly looking for more revenue sources, perhaps the idea is to move towards deductions free regime with simplified tax model which can engulf more Indians in the tax net with a specific eye on the largely let off businesses so far & the unorganized sector.
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