Union Budget 2020 launched the concessional/New Tax Regime (NTR) beneath part 115BAC of the Income-tax Act, 1961 offering people andHUFtaxpayers an choice to pay revenue tax at decrease charges; topic to forgoing sure exemptions and deductions. The NTR was launched to simplify the tax return submitting course of and to scale back the documentation required to say exemptions/deductions.
Under the NTR, salaried people should forgo exemptions like House Rent Allowance, Leave Travel Allowance and deductions for prescribed investments/bills that are in any other case accessible beneath the prevailing/previous tax regime (OTR).
Even although NTR offers for decrease tax charges with diversified revenue slabs, the OTR appears to be extra in style, particularly amongst salaried taxpayers. Below are some the reason why the NTR is relatively not as interesting because the OTR:
– Taxable revenue above ₹15,00,000 is taxed at 30% beneath each the OTR and NTR
– Contributions to long-term investments and retirement financial savings plans (such because the contribution to provident funds, insurance coverage premiums, and so forth.) don’t qualify for deduction beneath the NTR, not like the OTR. These investments typically present higher returns
– Deduction for compensation of curiosity and principal parts of housing mortgage in case of self-occupied property is just not accessible beneath the NTR.
– For salaried taxpayers, the pinch might be extra because the beneath exemptions/deductions will not be accessible beneath the NTR:
− Exemption for rental expenditure towards House Rent Allowance
− Exemption for journey bills towards Leave Travel Allowance/Assistance
− Standard deduction as much as a most of ₹50,000
− Deduction as much as a most of ₹2,500 for tax on employment or Profession Tax
– For a greater understanding, seek advice from the illustration beneath:
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Tax comparability: New regime vs previous regime (BDO India)
Salaried taxpayers with out revenue from enterprise or occupation can go for the NTR annually; nonetheless, for salaried taxpayers with revenue from enterprise or occupation, the choice is obtainable solely as soon as and can’t be modified later.
NTR could also be helpful for taxpayers who wouldn’t have many investments or belong to low-income teams. This is also helpful for many who want to have a hassle-free tax course of with out worrying to maintain monitor of the exemptions/deductions to be claimed. But the comparative tax outgo appears greater beneath the NTR regardless of decrease tax charges and therefore, doesn’t appear too helpful for taxpayers.
Given the elevated bills for people, a simply and tax-efficient single tax regime is the ask for the day. The upcoming Union Budget 2023 ought to handle these challenges and revamp the NTR or introduce a simplified single tax regime.
The creator, Deepashree Shetty, is Associate Partner – Tax and Regulatory Services at BDO India
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