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Every year
on 1st February our Honorable Finance Minister presents the Union
budget for the coming financial year and its applicable assessment year. On 1st
February 2020, our finance minister honorable Nirmala Sitharaman has presented the
budget 2020 in which many changes announcements have been incorporated along
with its objectives that are to be achieved.
As far as
the Indian Economy is concerned, it accounts for more than 50% in the service
sector, so it's a bit natural that most concentrating topic of the budget will
be Income tax head “Salaries”.
Also, Budget 2020 has made changes that give the
individual taxpayer a sense of worry as to whether their tax liability from now
on will be increased or decreased.
New Tax Regime:
The new tax
Regime under the Budget has offered individual taxpayers the concessional tax rates
and simultaneously the slabs have also increased.
First, let
us see the new Tax slabs introduced in this Budget and how it is different from
existing Slabs.
|
Annual Income
|
Tax Rate – New
Regime
|
Tax Rate – Existing
Regime
|
|
Up to 2.5 lakhs
|
Nil
|
Nil
|
|
2.5 lakhs to 5 lakhs
|
5%
|
5%
|
|
5 lakhs to 7.5 Lakhs
|
10%
|
20%
|
|
7.5 lakhs to 10
lakhs
|
15%
|
|
|
10 lakhs to 12.5
lakhs
|
20%
|
30%
|
|
12.5 lakhs to 15
lakhs
|
25%
|
|
|
Above 15 lakhs
|
30%
|
The
concessional tax rates above introduced in the new regime. However, certain
deductions like Standard Deduction of 50,000, deductions under 80 C which are
popular in old tax structure is no longer be available if individual taxpayers
opting the new scheme. The option is in the hand of the individual taxpayers.
Exemptions Not Available in New
Scheme:
As
discussed above, taxpayers need to forego the deductions if they are opting for
the new tax regime. Some of the deductions given below which will not be
allowed in the New Regime:
1. Standard
Deduction- Rs 50,000
2. HRA
(House Rent Allowance) – Depends on salary structure and Rent paid
3. LTA
4. NPS
contribution: Rs 50000
5. Investments
under Section 80C
6. Medical
Insurance Premium - Rs 25,000
7. Savings
Bank Interest Rs 10,000 under section 80TTA
8. Interest
Income for Senior citizens under section 80TTB
9. Donations
to specified Entities
10. Educational
loan interest - If paid for eight consecutive years
Exemptions Which Are Still
Available:
Following is
an illustrative list of exemptions that are still available for individuals
opting new regime.
1. Standard
Deduction on rent – 30% of rent received
2. VRS
Proceeds – Rs 5 lakhs
3. Agricultural
Income – No limit
4. Leave encasement on retirement: Rs 300,000
Seeing Tax
rates in new as well as old schemes, list of exemptions that can be availed and
which can’t be availed, salaried person is now confused as to which scheme to
opt.
Here is the solution to this. If any salaried person is claiming deduction
of above Rs 2.5 Lakhs, he or she is not benefited from a new tax scheme.
Pros and Cons of the New Scheme
It's
evident to note that the new tax structure left the taxpayer into dilemma as to
which scheme to opt. following are some pros and cons:
1. Pros in
the New Scheme:
(i) Reduced
Paperwork and Compliances: As compared to the old regime most of exemptions are
not available, so there is no documentation required for claiming exemptions.
(ii) Reduced
Tax Rates: Clear from the above table, slabs have been widened and increased to
six and rates also have been decreased.
(iii) Increased
“Cash in Hand”: As there is no need to need of investment for claim deduction,
there is increased liquidity in the hands of an individual taxpayer.
(iv) Flexible Choices for Investment: AS in case of the old regime, 80C
requires the notified investments only along with specifies lock in periods,
but in case of the new regime no boundary for investments’.
2. Cons of
the Old Scheme:
(i) Not
Major Exemptions Available: This is the only major problem with the new scheme.
Pros and Cons of Existing/Old
Scheme
1. Pros of
Old Scheme:
(i) An
increased habit of Savings: In the existing scheme people have no option but to
save for future events like marriage, purchase of property, education, etc.
(ii) India’s
Gross savings rate will increase if there are more savings and investments.
2. Cons of
Old Scheme:
(i) Specified
Lock in Term/period: Specific instruments if invested, there is a specified
lock-in period for 3 to 5 years. This means there would not be enough
liquidity.
(ii) Documentation:
If any assessment proceeding arises, there is huge paperwork and documentation required.
Making a Choice:
In light of
the above pros and cons in both the schemes, it can be concluded that it is
advisable to do a comparative evaluation for both the schemes before continuing
with the old one and opting for the new one. Also, one good thing choice can be
exercised every year for individuals (but not for individuals who have income
from business or profession).
Any
Taxpayer who wants flexibility in the choice of investments wants liquidity of
cash, reduced paperwork can opt for the new scheme.
It is important
to note that the Income Tax Department has brought tax comparison utility which
is available at their web portal, to evaluate which option suits best.
Link - https://www.incometaxindiaefiling.gov.in/Tax_Calculator/
Written by -
Utkarsh Samaiya
Edited by -
Adrija Saha
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