New tax regime offers hardly any relief
- The budget comes up with lower tax slabs but it may not benefit you since you will have to forgo deductions
- Overall, most taxpayers are disappointed with the budget as expectation of tax breaks was very high
Presenting her second budget, the finance minister emphasized on a simplified tax regime that would seemingly make chartered accountants (CAs) go out of jobs. But if the reactions on Twitter are anything to go by, the new tax regime will, in fact, justify a higher fee for CAs to help you understand if you are really better off under the new tax regime, which has lowered the tax rates but makes you let go of most deductions and exemptions. Like always, the devil is in the details and the details in this case don’t look promising.
What has changed?
Under the new regime, there are seven tax slabs—there’s no tax for income up to ₹2.5 lakh, 5% for income between ₹2.5 lakh and ₹5 lakh, 10% for income between ₹5 lakh and ₹7.5 lakh, 15% for income between ₹7.5 lakh and ₹10 lakh, 20% for income between ₹10 lakh and ₹12.5 lakh, 25% for income between ₹12.5 lakh and ₹15 lakh, and 30% for income above ₹15 lakh. The new tax slabs and rates are the same for all categories of taxpayers, including senior citizens and super senior citizens (see graph).
However, under the new regime, you will have to forego more than the benefit you will derive as you can’t claim many of the deductions and exemptions available now. To start with, you will have to forego the benefit of standard deduction available to salaried individuals, house rent allowance (HRA), deductions under Section 80C, 80D, 24(B) and so on. Overall, out of more than 100 deductions and exemptions that are currently available to taxpayers, about 70 will not be available under the new regime. Note that the new regime is not available to sole proprietors or those having business income.
The new regime will benefit few taxpayers. “Only those who are living with their parents, don’t have a home loan or claim other deductions will benefit under the new regime. Those who are living on rent and claiming HRA, and deductions under 80C, 80D and so on might have to evaluate the actual savings before opting for the new regime,” said Kuldip Kumar, leader, personal tax, PwC India.
Click here to see enlarged version of graphic
Further, with no benefit of deduction available, “it will play as a deterrent for small savings products and other instruments, which qualify for deductions under various sections,” added Kumar.
Other announcements
The budget proposed decriminalization of civil offences and introduced a taxpayers’ charter and an income tax dispute resolution scheme, aiming to enhance trust among taxpayers and reduce tax litigations.
It took last year’s budget announcement of PAN and Aadhaar interchangeability a step further. Now you will be able to obtain PAN online on the basis of details available in the Aadhaar database, without filling up a detailed application form.
There are changes for those working abroad. “Indian citizens who are not residents in India and who are not tax residents in any other country, would now be considered tax residents in India and hence would be liable to tax in India on their global income,” said Amit Maheshwari, partner, Ashok Maheshwary, a chartered accountancy firm. Also, the criteria on which residential status is determined have been tweaked. “Individuals who leave India for employment are considered NRI if they stay in India for less than 183 days. This has been now reduced to 120 days. To qualify as NRIs, they will have to ensure that they remain tax residents of another country and remain out of India for at least 246 days,” added Maheshwari.
Overall, most taxpayers are disappointed with the budget as expectation for significant tax breaks was high, given the economic slowdown and the recent cut in corporate tax rates.
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First Published:2 Feb 2020, 05:12 PM IST
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