The New “Simplified” Tax Regime
For the Finance Minister, it is simple. But is it for millions of Indians?
The FM Nirmala Sitharaman announced the Union Budget on Saturday, where she said and we quote,” I propose to bring a new and simplified personal income tax regime”. Here’s why the new tax regime was anything but simple.
The below table shows the new tax rates.
What’s The Problem With The New Tax Regime?
- There are way too many tax slabs in the new one, making it difficult for the people.
- To Take Exemptions Or Not To Take Exemptions: Even though the government has reduced the tax rates under the new tax regime, they have also introduced one catch, which is that the new tax regime proposes to remove the various deductions, such as
- House Rent Allowance
- Section 80C (Investments in PF, NPS, Life insurance premium, home loan principal repayment, etc.)
- Section 80D (medical insurance premium)
- Interest paid on housing loans
- Tax breaks for the disable and for charitable donations
- Standard deduction of ₹50,000 currently available to salaried tax payers and so on
What Is The Impact?
- Firstly, people need to calculate how much taxes they are liable to pay under both regimes separately and then, choose the one in which they have to pay less tax. If you’re someone who was already struggling with the calculation of income taxes, then this is not a relief, the government has now made your job more difficult than before.
- Since the government has abolished the dividend distribution tax, the people with higher tax brackets may end up paying more tax than before.
Experts say that the new tax regime will be adopted by small businesses, self-employed people and retirees. However, the salaried people, who invest in ELSS for tax deductions, might stay with the old system.
In conclusion, the FM’s aim was to simplify the personal tax system to a level where people don’t need the help of professionals to do their taxes. But, with the new and old regimes at play, we feel that now there is a necessity for everyone to go to professionals to do their taxes.