The new personal income tax regime that hinges on taxpayers not availing of any exemptions will not affect the country’s savings rate as household savings based on such tax exemptions are “actually a very small proportion of total savings”, Revenue Secretary Sanjay Malhotra asserted on Friday.
Acknowledging that many had raised concerns about the impact on savings due to the Budget’s push for the new exemption-less tax regime, Mr. Malhotra said that just ₹4 lakh crore of the country’s total household savings of about ₹25 lakh crore are parked through these tax-saving instruments.
While India’s savings rate is about 27% to 30% of GDP, the Revenue Secretary said people won’t stop investing even if they switch to the new tax regime, and the market will also come up with new alternatives to attract financial savings from those who move away from the tax exemptions-driven regime.
“The new small savings scheme announced in the Budget for women and the expansion of scope (investment limits) in two other small savings schemes (the senior citizens and monthly income schemes) will help the country in improving our savings rate,” he said.
“On the other hand, the market will recalibrate and find the right levels to make it more attractive for people to save so that the country has enough money to invest… And people are now investing even otherwise. I did a survey asking people about this and they said they would continue to save and not stop just because the tax break is withdrawn,” Mr. Malhotra said.
He was responding to a query from Confederation of Indian Industry (CII) director general Chandrajit Banerjee on whether the new tax regime would encourage savings.
Stressing that the revenue estimates in Budget 2023-24 are realistic and not conservative, Mr. Malhotra signalled that the high buoyancy of in GST and direct tax collections that have risen about 24% this year, cannot be expected every year.
“The high growth rates we are seeing this year, is partly because of two reasons – apart from simplification and tax avoidance measures we have taken. There is a base effect too as the first quarter of last year was a COVID-hit period. Second, there was a slight increase in GST rates in July,” he pointed out.
Similarly, direct taxes also showed a sharper rise because income tax return filing dates were advanced to normal dates as opposed to postponed dates in the last couple of years, he explained.
