International Journal For Multidisciplinary Research

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New Tax Regimes in India – a Mile stone towards the improvement in Indian Tax Administration System

Author(s) Dr. J Maju Joy, Mr. Mahendra Ikhar Ikhar
Country India
Abstract Abstract

The new tax regime was introduced by govt. of India in the union budget of 2020. An average individual in India is not at all interested to pay Income Tax keeping the deep mindset that the taxation system in the country is not beneficial to individual tax payers. Now the question is that what can be the pattern of tax regime to increase the number of individual tax payers as well as to put less burden of tax payments on individuals. The old tax slab was beneficial in the sense that it was providing many deductions to reduce the taxable income and to increase the disposable income subject to fulfilling certain terms and conditions of income tax. The new tax regime is not providing the deductions but it is simplifying and reducing the tax slabs which lead to lesser tax liability as compared to old regime. Finally the objective of an individual is to accomplish life goals and protecting family’s future. The New Tax Regime in India, introduced in the Union Budget of 2020 by Finance Minister Nirmala Sitharaman, aims to simplify tax compliance and enhance disposable income for individuals, particularly within the middle class. This reform has garnered attention for raising the income threshold for tax exemption to ₹3 lakh, effectively eliminating income tax for low-income earners, while also revising tax slabs that provide significant relief to middle-income households earning up to ₹12 lakh annually. Notably, the introduction of a standard deduction of ₹75,000 for all taxpayers marks a pivotal shift from the previous system, which relied heavily on numerous deductions and exemptions, thus streamlining the tax filing process and reducing the overall tax burden. The New Tax Regime's impact on the middle class is projected to be profound, with estimates suggesting an injection of approximately ₹5 lakh crore into the economy, contributing to increased consumer spending and potentially driving GDP growth beyond 8% for FY26.This initiative aligns with the government's broader strategy to stimulate economic activity amid rising living costs and employment challenges, reinforcing the middle class's critical role in India’s economic framework. Furthermore, the dual tax structure allows taxpayers to choose between a lower tax rate with fewer deductions or the traditional model with higher rates and various exemptions, catering to diverse financial preferences and goals. However, the New Tax Regime has not been without controversy. Critics argue that while it simplifies tax compliance, it still burdens the middle-income group with relatively high effective tax rates and does not adequately address their financial aspirations. Concerns have also been raised regarding the government's ability to maintain revenue generation amidst significant tax cuts, with warnings that such measures could jeopardize essential public investments and long-term economic stability. Additionally, the choice between the old and new systems has led to confusion among taxpayers, complicating their decision-making process regarding financial planning and investment strategies. In conclusion, while the New Tax Regime introduces notable benefits aimed at enhancing the financial well-being of the middle class in India, ongoing criticisms highlight the need for further reforms to ensure that the tax system is equitable and effectively supports this vital segment of the economy. The government's balancing act of stimulating growth while maintaining fiscal responsibility remains a critical challenge as India navigates its economic landscape.
Keywords New Tax Regime, Disposable Income
Field Business Administration
Published In Volume 7, Issue 3, May-June 2025
Published On 2025-05-28
DOI https://doi.org/10.36948/ijfmr.2025.v07i03.45631
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