Four takeaways for taxpayers from the budget
3 min read 05 Feb 2023, 09:52 PM ISTThe lure of insurance policies as an investment product will go away now
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This year’s budget has been a bag of surprises. One thing is for sure: we can no longer expect any changes to the old tax regime in future; all we can hope for is enough time to adapt to the new regime and be allowed to make the most of the old regime, while it lasts.
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This year’s budget has been a bag of surprises. One thing is for sure: we can no longer expect any changes to the old tax regime in future; all we can hope for is enough time to adapt to the new regime and be allowed to make the most of the old regime, while it lasts.
With this context, here are four key takeaways from this year’s budget.
With this context, here are four key takeaways from this year’s budget.
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Be more diligent with tax planning: Let’s first list down the benefits of the new tax regime. There is no need to store receipts of rent, travel, reimbursements, no more confusing CTC calculations; simple pure cash delivered as salary in your bank account is what you get if you opt for the new regime. Less hassle but somewhat higher taxes. Many taxpayers will actually still stand to gain if they are paying rent, claiming LTA, have a mix of reimbursements as part of their pay, contributing to EPF (Employees Provident Fund) or investing in PPF (Public Provident Fund) to maximize 80C ( ₹1.5 lakh) and also contributing to their NPS account ( ₹50,000). Essentially, ₹2 lakh worth of deductions, and opting for exemptions within the salary, will make you better off with the old regime. However, our survey revealed that only around 42% taxpayers with annual income in excess of ₹8 lakh, maximize or fully exhaust the ₹1.5 lakh deduction available under section 80C. If you want to save more tax, make sure you pick up whatever is on the table. If you commit to the old regime but end up not utilizing the benefits, you can still switch to the new regime at the time of filing your income tax return.
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Time to look away from insurance policies: If insurance policies are still your jam, be careful. Where the premium payout from new policies (taken after 1 April 2023) exceeds ₹5 lakh, either from one or more policies, the sum assured or the payout received shall be taxable. The premiums paid shall be reduced from the sum assured, and the entire receipt shall become taxable as per your slab rates. While insurance policies definitely serve a purpose, their lure as an investment product will go away.
Travelling abroad might block your funds: Under the LRS (Liberalized Remittance Scheme), the money you send abroad attracts some TCS (tax collected at source) which is collected from you in advance. This is perhaps to ensure that those spending money abroad are filing returns in the home country. This TCS has been hiked to 20% without any minimum threshold (earlier it was 5% when total remittances exceeded ₹7 lakh) for all remittances other than those related to education and medical treatment.
Due to TCS, taxpayers will now have to shell out an extra 20% while travelling abroad, or those buying assets abroad or investing abroad. However, note that the TCS can be adjusted against your final tax dues or refunded to you when you file your returns. Exactly the way TDS works, just with another name. While TDS is ‘deducted’ when you ‘receive’ payment, TCS is ‘collected’ on expenses. Note that on LRS for education and medical treatment, 5% TCS will be applicable when remittance in aggregate exceeds ₹7 lakh. There is no change here.
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Self-employed will pay less in taxes: Certain specified professionals, and businesses are allowed to opt for a much simpler scheme of taxation. Under the scheme, they can assume their income/profit. Earlier professionals with annual receipts of up to ₹50lakh and businesses with turnover of up to ₹2 crore, were eligible. These limits have been enhanced to ₹75 lakh and ₹3 crore, respectively but on one condition that their cash receipts must not be more than 5% of their total receipts. Profits are assumed to be 50% for professionals and 6% for businesses. All expenses are assumed to be allowed after applying this presumed income concept. Say, for example, an interior decorator has receipts of ₹70 lakh during the FY. Her profit shall be assumed to be ₹35 lakh, and that’s what she’ll pay tax on. On ₹35 lakh, she can then opt for the old tax regime or the new tax regime.
Archit Gupta is founder and chief executive officer at Clear.
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Updated: 06 Feb 2023, 06:15 AM IST