The Economic Survey 2023 further said, “After plummeting during the pandemic-affected year FY21, revenue receipts registered robust growth in FY22 PA, both on a YoY basis and to the pre-pandemic year FY20. This revenue revival was attributed to a rebound in the collection of all major direct and indirect taxes (except excise duties) in FY22. Last year’s revenue buoyancy momentum is continuing into the current year. The Gross Tax Revenue registered a YoY growth of 15.5 per cent from April to November 2022, and the Net Tax Revenue to the Centre after the assignment to states grew by 7.9 per cent on a YoY basis.”
The survey further said that the resilience exhibited by economic growth underpins the sustained revenue buoyancy observed over the years. However, that revenues have grown at a pace much higher than the growth in GDP is a testimony to the effectiveness of efforts taken by the government to expand the tax base and enhance tax compliance. Structural reforms like the introduction of GST and the digitalisation of economic transactions have led to the greater formalisation of the economy and hence expanded the tax net. Other tax administration/policy measures, such as the Faceless Assessment and Appeal, simplification of return filing, assistance to taxpayers in getting familiar with the systems, generation of e-way bills under the GST system, and information sharing between government departments among others, have nudged higher tax compliance through technology and artificial intelligence.
There have been several media reports saying that the government may announce income tax relief in the coming Budget 2023. The sharp increase in direct tax collection could give the government the fiscal leeway to meet the expectations of tax relief or a hike in the basic income tax exemption limit.
Former revenue secretary Tarun Bajaj in media interactions, before retirement, also said that there is a case for making the new income tax regime more attractive.
Under the current new income tax regime, an individual has to forego approximately 70 tax exemptions and deductions. Due to this, very few people have opted for the new income tax regime.
On the other hand, if an individual opts for old tax regime then an individual having income between Rs 7 lakh and Rs 7.5 lakh can claim deductions to bring the net taxable income to Rs 5 lakh. An individual having net taxable income not exceeding Rs 5 lakh is eligible for a rebate of Rs 12,500 under section 87A. This makes an individual not paying any income tax.If the same individual opts for new income tax regime, then he cannot bring down the net taxable income (because claiming of exemptions and deductions is not allowed) to Rs 5 lakh.
An individual is not required to pay any tax in both the tax regimes if net taxable income does not exceed Rs 5 lakh. He/she is eligible to claim rebate under section 87A of Rs 12,500.