Nirmala Sitharaman on govt’s plan to move towards an exemption-free income tax regime

Finance minister Nirmala Sitharaman said the government may follow “a whole lot of grandfathering processes” as it is planning to move towards an exemption-free income tax regime.

She was responding to concerns about what will happen to long-term investments that tax payers make for availing of exemptions.

“That’s going to be the situation even if I did it next year,” she said. “So, whenever I would commence this, you are going to have a situation where a lot of people who have made commitments towards long-term investments or savings for their houses, or insurance. A part of governance is also to administer keeping all those things in mind. It’s not that somebody is going to deny the commitments they have made. And that’s why I went as far as to say, given the twin-track option, stay where you are or move to the new regime.”

“And in the long run, we will” move toward phasing out exemptions, Sitharaman said on Sunday in Kolkata. “And, whenever government policies are made, there are a whole lot of grandfathering processes to be followed. I don’t think there will be any different to that.”

The budget has introduced lower tax rates in certain income slabs for those who forego exemptions. These include tax breaks on insurance premiums and home loan principal and interest payments, which are long term in nature. After the budget, Sitharaman spoke about the government’s thinking on phasing out exemptions.

She said this wouldn’t hurt the savings rate.

“The choice of putting the money to earn something more is now wider with the way in which the economy is widening,” she said on Sunday. “So, money may not necessarily be put in small savings as we have seen earlier through post offices. Today an individual can have a considered call. In the sense, savings need to necessarily be through banks, or fixed deposits of post offices. Now they can even go to the stock market, buy shares or buy debt in the bond market.”

She was in Kolkata to meet businessmen, industry leaders, tax experts, chartered accountants, economists and academics to discuss the budget and get their views on the exercise.

“We have laid the foundation for increasing consumption, ensured that investments go towards building of assets such as infrastructure, which will surely have a cascading effect both in the short term and in the long term,” she said. “And with that, the virtuous cycle of triggering the economy to move forward will happen. The majority of government expenditure is going toward infrastructure and construction.”

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