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Moving to the new income tax regime for individuals makes sense for those who are not availing any tax deduction, according to Crisil Research.
According to a post-Budget analysis by Crisil Research, the transition to the new regime could impact investment flows in mutual funds, insurance and pension products.
Adoption of tax-saving sops for individuals would depend on their income and savings pattern. However, transition to the new system would be contingent on them preferring the current regime as well as their lack of wherewithal to generate higher returns.
As per the revision in the personal income tax regime for salaried individuals, a taxpayer would have to forego the deductions allowed currently if she/he prefers the new tax regime.
CRISIL Research's assessment indicates that moving to the new regime makes sense for those who are not availing any deduction today, compared with those who are. Given that a large proportion of those availing deductions will not move to the new regime, the announcement will at best be a mild positive for taxpayers.
Abolition of dividend distribution tax (DDT) at source will increase money in the hands of investors in the lower tax brackets and remove the double taxation impact on mutual fund investors.
"However, this might increase the tax liability for investors in higher tax brackets, especially equity and debt fund investors who earlier paid 10 per cent and 25 per cent, respectively," it said.
Also, there were no major announcements to tackle the current slowdown in the economy and address stress in the non-banking financial companies (NBFC) and housing sectors.
"We believe that urban income growth, sentiment, and hence, spending on big-ticket items such as automobiles and real estate, are likely to remain muted over the short term," it said.
Crisil Research pointed out that for the first time in years, overall infrastructure capital expenditure (capex) has fallen to Rs 4.7 lakh crore for fiscal 2021 from Rs 5.1 lakh crore in fiscal 2020 RE. Lower spend on infrastructure would also lower chances of revival in allied sectors, particularly steel and cement.
Allocation for railways has increased 3 per cent to Rs 1.6 lakh crore in fiscal 2021. But this falls way short of the Rs 3.8 lakh crore annual investment envisaged as part of Rs 50 lakh crore investment over fiscals 2018-30, it said. A capex of Rs 6 lakh crore was incurred between fiscals 2016 and 2020, missing the Rs 8.5 lakh crore target set for this period.
