Lower income tax in Budget 2020: ₹78,000 gain or ₹7,800 loss? | Mint
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Business News/ Budget 2019 / News/  Lower income tax in Budget 2020: 78,000 gain or 7,800 loss?
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Lower income tax in Budget 2020: ₹78,000 gain or ₹7,800 loss?

Only those who claim very few deductions and exemptions will benefit from the new income tax regime unveiled in the budget
  • Sitharaman says you'll ₹78,000 in taxes under the new tax system for individual earning ₹15 lakh
  • If a taxpayer pays rent and claims exemption for it, the person loses more in the new regimePremium
    If a taxpayer pays rent and claims exemption for it, the person loses more in the new regime

    New Delhi: The euphoria about personal income tax cuts was short-lived. Only a few taxpayers stand to benefit from the new tax regime announced by the finance minister.

    (Graphic: Ahmed Raza Khan/Mint)
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    (Graphic: Ahmed Raza Khan/Mint)

    Introducing the new regime, Nirmala Sitharaman claimed that taxpayers who give up certain deductions and exemptions stand to save as much as 78,000 in taxes a year.

    You are right to be disappointed with Budget 2020 that was expected to put money in your pocket
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    You are right to be disappointed with Budget 2020 that was expected to put money in your pocket

    For instance, a person earning 15 lakh in the proposed tax regime will pay 1.95 lakh as tax, while a person in the old regime will pay 2.73 lakh, if no deductions are claimed by either. Sitharaman said a taxpayer who doesn’t claim any deductions still stands to gain in the new regime even if he was availing deductions worth as much as 1.5 lakh earlier.

    The budget also limits the tax deduction on employers’ contribution to EPF and NPS to  <span class='webrupee'>₹</span>7.5 lakh per annum
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    The budget also limits the tax deduction on employers’ contribution to EPF and NPS to 7.5 lakh per annum

    That assumption may be faulty because she has used deductions available under Section 80C, one of the many available to a taxpayer, to come to the conclusion. If we add other deductions that stand removed in the new regime, the maths changes. For example, if we add the standard deduction of 50,000 available to salaried individuals, Section 80C deduction of 1.5 lakh, 25,000 for mediclaim premium and 50,000 for NPS investment, the person will lose 7,800 under the new system.

    The tax changes are full of fine print and will benefit just a tiny fraction of the 3.5 crore Indians who pay income tax
    View Full Image
    The tax changes are full of fine print and will benefit just a tiny fraction of the 3.5 crore Indians who pay income tax

    In the new regime, there are now seven tax slabs—no tax for income up to 2.5 lakh; 5% for income between 2.5 lakh and up to 5 lakh; 10% for income between 5 lakh and up to 7.5 lakh; 15% for income between 7.5 lakh and up to 10 lakh; 20% for income between 10 lakh and up to 12.5 lakh; 25% for income between 12.5 lakh and up to 15 lakh; 30% for income above 15 lakh.

    India now has a tax system that spreads across 11 levels of slabs and surcharges
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    India now has a tax system that spreads across 11 levels of slabs and surcharges

    If other deductions are availed, the taxpayer stands to lose more. For instance, if a taxpayer pays rent and claims exemption for it, the person loses more in the new regime. Only those who claim very few deductions and exemptions will benefit from the new tax system.

    (Graphic: Ahmed Raza Khan/Mint)
    View Full Image
    (Graphic: Ahmed Raza Khan/Mint)

    That means, for most income taxpayers, the budget has little to cheer about.

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    Published: 02 Feb 2020, 12:04 AM IST
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