Within the Union Price range introduced on Wednesday, the finance minister made 5 bulletins to cut back the tax burden of the hard-working center class. Out of the bulletins, 4 pertain to the brand new tax regime of Part 115BAC launched three years in the past as an alternative choice to the complicated regime consisting of quite a few exemptions and deductions. The final one is for the exemption on go away encashment.
The brand new tax regime permits people and Hindu Undivided Households (HUFs) to pay taxes at a decreased charge, with the trade-off of sure exemptions and deductions. Nevertheless, regardless of the federal government’s efforts to simplify the tax system, the uptake of this regime was low because of the unavailability of frequent tax deductions and exemptions, just like the deduction for insurance coverage premiums, medical premiums, curiosity on housing loans, HRA, customary deductions, and so forth.
This price range goals to make the brand new tax regime extra engaging. The utmost exemption restrict and the variety of tax brackets within the new tax regime have been revised. The brand new most exemption restrict shall be ₹3 lakh, and for each further earnings of ₹3 lakh, the subsequent tax slab shall apply. There can be six tax slabs within the new regime – Nil, 5%, 10%, 15%, 20%, and 30%. The best slab of 30% will proceed to use to earnings above ₹15 lakh.
One other change pertains to the rebate below Part 87A. This rebate reduces the tax fee of a resident particular person to zero if his complete earnings is as much as ₹5 lakh. The price range retains the restrict of ₹5 lakh within the outdated regime however will increase it to ₹7 lakh for people choosing the brand new tax regime. Thus, in case your earnings is greater than ₹5 lakh however as much as ₹7 lakh, choosing the brand new regime can be extra useful.
The following change is permitting the usual deduction for the primary time to the staff choosing the brand new regime. The usual deduction is now allowed in each the outdated and new tax regimes.
One other announcement is decreasing the very best slab of surcharge charge of 37% to 25% for people incomes earnings above ₹5 crores. This decreased surcharge charge will apply when the person opts for the brand new tax regime. Within the outdated regime, the surcharge charge shall proceed to be 37% if the earnings exceeds ₹5 crores.
Yet another announcement pertains to the brand new tax regime, making it the default tax regime. It implies that if an worker doesn’t explicitly declare to the employer, the tax shall be computed and deducted as per the brand new tax regime. For non-salaried people, there can be a further compliance requirement to go for the outdated tax regime. Presently, a non-salaried particular person has to file Type 10-IE to go for the brand new tax regime. There could also be an analogous type for choosing the outdated tax regime, and the brand new tax regime shall apply by default.
Even after contemplating the above bulletins, the brand new tax regime could not profit many taxpayers. The paragraph under highlights the break-even factors of the taxable earnings for the brand new tax regime.
The brand new tax regime is at all times useful in case you are a non-resident or a resident particular person not claiming any exemption or deduction. When you want to declare the three deductions — curiosity on the housing mortgage, Part 80C (life insurance coverage, and so forth.), and Part 80D (medical insurance coverage), the outdated tax regime could have lesser tax. When you want to declare two deductions below Part 80C and Part 80D, the brand new tax regime can be extra useful in case your complete earnings exceeds Rs. 8.25 lakh. So it is best to go for the brand new tax regime if, after claiming the 2 deductions of Part 80C and Part 80D, your earnings is above Rs. 8.25 lakh. And in case your earnings is under ₹7 lakh and you’re a resident particular person, the tax legal responsibility within the new regime shall be nil after claiming the rebate below Part 87A.
In conclusion, the price range introduced by the finance minister guarantees vital advantages to the middle-class. In actuality, many resident people incomes wage earnings in Tier-1 and Tier-2 cities nonetheless go for the outdated tax regime. The deductions below Part 24, Part 80C and Part 80D are so frequent amongst salaried taxpayers that it nonetheless makes the brand new tax regime unattractive.
(Naveen Wadhwa, a chartered accountant, is DGM at Taxmann)