Finance Minister Nirmala Sitharaman explains rationale of lower rates in new income tax regime

Finance Minister Nirmala Sitharaman today said that Budget proposals under the new income tax regime will leave more money in the hands of the people and it is up to to the taxpayer to decide where to put his money, rather than the government incentivizing or disincentivizing him to do so. In this year's Budget, the finance minister announced a number of changes to the new tax regime, including reduction of number of tax slabs. To make it more attractive, standard deduction was also introduced in the new tax regime.

Talking to reporters after the customary post-Budget address to the central board of the RBI, she said it is not necessary to induce individuals to invest through government schemes but give them an opportunity to make a personal decision regarding investments.

"...the way we allowed for standard deduction and also the rates which have been fixed, tax rates which have been fixed for different slabs, it has actually left more money in the hands of the people, the taxpayer, the household," she said.

Sitharaman in her latest Budget proposed to extend the Rs 50,000 standard deduction benefit to persons opting for the new tax regime.

"I don't think it is necessary for the government to even induce any such measures. A person who earns his money and who runs his household is wise enough to know where he has to put his money...So I've not discouraged him from doing it nor am I incentivising them to do anything in particular. It's for him to take a call," she said.

Under the revamped concessional tax regime, which will be effective from the next fiscal, no tax would be levied on income up to Rs 3 lakh. Income between Rs 3-6 lakh would be taxed at 5 percent; Rs 6-9 lakh at 10 percent, Rs 9-12 lakh at 15 percent, Rs 12-15 lakh at 20 percent, and income of Rs 15 lakh and above will be taxed at 30 percent.

However, no tax would be levied on annual income of up to Rs 7 lakh.

This measure of the government was purely to reduce the tax burden on the middle class and is aligned to the promise which was made a couple of years ago of simplifying direct taxation, she said.

Answering a question on the Adani Group crisis, the minister said, "Indian regulators are very, very experienced and they are experts in their domain. The regulators are seized of the matter and they are on their toes as always not just now."

On regulating cypto assets, she said India is in discussion with G20 nations for designing a common framework.

Responding to a query on price rise, RBI Governor Shaktikanta Das said retail inflation is expected to be around 5.3 percent in 2023-24 and may fall further if crude prices remain benign.

Das said RBI has assumed USD 95 per barrel rate of crude for inflation projection for the next fiscal.

"So if the oil prices go down significantly and if there is advantage of other commodity prices, it will work to (our) favour in terms of leading to lower inflation but if demand for oil due to the opening of countries (rises)... then the commodity prices may go up," he said.

But having said that, he said, "I would like to add that the global economic outlook does not look as grim as it did about six months ago. The talk of a deep recession in many countries including advanced countries... that is behind us. Now the talk around the world is either the softer recession or just a global slowdown. So therefore the risks are evenly balanced. We have to wait and see how it plays out."

On pricing of loans, Das said market competition will decide rates on lending and deposit sides as it has been a de-regulated segment.

The real interest rates have just moved into the positive territory, he said, adding the economy faced negative interest rates for the last three years.

"The continuation of negative interest rates for too long can create instability in the financial system. So the interest rates have just now moved into the positive territory. Negative interest for a long time has a lot of risks which have to be avoided," he said.

Regarding the National Financial Information Registry (NFIR) announced in the Budget, Das said the idea is to quicken the process of credit sanction and credit flow to the borrowers.

"Lot of information is required by a bank before a loan is sanctioned. The idea is to create one registry where, to the extent possible, considering issues of privacy and other things... the idea is to provide the 360 degree kind of information system which will be readily available to the lending institutions to ensure that it quickens the process of credit flow," he said.

The bill for setting up NFIR will have to be finalised and then introduced in Parliament.

RBI later in a statement said, the finance minister in her address to the central board highlighted the key thrust areas outlined in the Union Budget 2023-24 and the expectations from the financial sector.

Complimenting the finance minister on the Budget, the RBI board members made a few suggestions for consideration of the government, it said.

The board also reviewed the global and domestic economic situation, and associated challenges.

The finance minister was accompanied by two MoS finance, Bhagwat K Karad and Pankaj Chaudhary, finance secretary T V Somanathan, Department of Investment and Public Asset Management Secretary Tuhin Kanta Pandey, Revenue Secretary Sanjay Malhotra, Economic Affairs Secretary Ajay Seth, and Financial Services Secetary Vivek Joshi.

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