The finance ministry is proposing to review the exemption-free new tax regime in order to make it more attractive for individual income taxpayers, sources said.
Sources said that the government aims to establish a system where there are no exemptions and the complex old tax regime with exemptions and deductions is terminated.
The Union Budget 2020 -- 21 introduced a new tax regime. The old regime with various deductions and exemptions and the new tax regime with lower tax rates without exemptions and deductions gave taxpayers the choice between the old regime and the new regime.
The intention was to simplify income-tax law and to give relief to the individual taxpayers.
Sources said there were clear signs that people who have finished their home and education loans are willing to switch to the new tax regime because they have no exemptions to claim.
Sources said that lowering taxes in the new regime would make the new tax regime more attractive.
A similar tax regime for corporate taxpayers was introduced in September 2019 by lowering rates and removing exemptions.
The government had announced a reduction in corporate tax for existing companies to 22 per cent from 30 per cent, and for new manufacturing firms, incorporated after October 1, 2019 and starting operations before March 31, 2024, to 15 per cent from 25 per cent. The companies that opt to stay with the new tax rates will have to forego all exemptions and incentives.
The new tax regime for individual taxpayers was announced on February 1, 2020, but people with an annual income of up to Rs 2.5 lakh do not have to pay any tax.
The tax rate is 5 per cent for income between Rs 2.5 lakh and 5 lakh.
Those with incomes of Rs 5 lakh and Rs 7.5 lakh have to pay a reduced tax rate of 10 per cent, between Rs 7.5 lakh and Rs 10 lakh 15 per cent, between Rs 10 lakh and 12.5 lakh 20 per cent, between Rs 12.5 lakh and 15 lakh 25 per cent, and above 15 lakh 30 per cent.