The ₹7 lakh tax rebate introduced under the new tax regime during the Union Budget 2023 was widely viewed as a measure to reduce the tax burden on middle-income taxpayers. But according to ClearTax CEO Archit Gupta, the provision’s impact extended far beyond tax savings.
“A simple paycheck was evolving into a portfolio,” Gupta said, pointing to a bigger shift in how Indians earn, save and invest.
The top executive noted that data from income tax filings supported this trend. After the rebate was introduced in AY 2024-25, filings in the ₹5 lakh- ₹10 lakh income bracket more than doubled. In the same year, more people upgraded to ITR-2, which is meant to be filed by taxpayers with capital gains.
“According to the IT portal, filings in the 5 to 10 lakh earning bracket jumped by 144%. In that same year, the number of people upgrading to ITR-2 rose by nearly 35%,” he said in a X (formerly Twitter).
The first stop wasn’t the stock market
Gupta said the initial assumption was that most of the tax savings would rush into the stock market but that wasn’t the case.
A large portion of the money first went into traditional such as NPS, EPF and PPF. According to him, this is likely why salaried ITR-1 filings remained stable at first, even as taxpayers slowly started exploring other investment options.
“We started seeing people draw a salary, park money in safe assets, and test the capital markets. Bit by bit, a simple paycheck was evolving into a portfolio,” he wrote in the X post.
When savings began flowing into markets
According to Gupta, as investments in tax-saving instruments matured, a larger share of that money began moving into capital markets.
“The filings for AY 2025-26 show this direction even more clearly. As those tax saving instruments matured, most of that money began finding its way into capital markets,” he noted, citing official data available on the income tax portal.
This shift was also reflected by a decline in traditional filings, while ITR-2 and ITR-3 filings continued to rise.
“ITR-1 filings are now slipping by almost 3%, while ITR-2 and ITR-3 filings are climbing,” he said in the post.
This suggests that the ₹7 lakh rebate did more than reduce tax outgo. It encouraged taxpayers to move beyond a salary-only income profile and gradually build additional sources of income through investments and other assets.
Now that the rebate threshold have been raised to ₹12 lakh under the new tax regime, he said it will be interesting to see whether a similar pattern will emerge in the years ahead.
Under the new tax regime, individuals with an annual income of up to ₹12 lakh will not have to pay any , excluding income taxed at special rates such as capital gains, Finance Minister Nirmala Sitharaman announced in Union Budget last year. For salaried taxpayers, this tax-free limit rises to ₹12.75 lakh because of the ₹75,000 standard deduction.