Mohit Bharatiya | The Finance Minister of India, Nirmala Sitharaman recently announced the new income tax regime in Budget 2020-21. Experts have stated that the new income tax structure has its own benefits and drawbacks which would depend on how much an individual earns on a yearly basis. However, some people are in favor of the new income tax regime while others are confused as to whether they should switch to the new tax structure or stay put under the existing income tax regime.
The benefits:
The new income tax regime benefits people with low investment policy schemes. It also offers seven lower tax slabs and anyone paying taxes without claiming exemptions under the existing system can benefit from paying a lower rate of tax. For example, taxpayers having gross total income of up to Rs 12 lakh have to pay more under the old system if they have investments that are less than Rs 1.91 lakh. Therefore, it is advisable to go for the new income tax regime if you invest less in tax saving schemes. There is also another benefit of switching over to the new optional regime is the fact that you don’t have to worry about complex filings which would lead to fewer mistakes in filing.
Finance Minister Nirmala Sitharaman has announced that the process under the new income tax structure will be much easier for taxpayers and hassle-free. if you are a person with no investments or a few investments to showcase, you will find it much convenient to file taxes under the new income tax system. It is also an optional scheme so people have the flexibility to switch over from one system to another after evaluating its benefits for the previous year. However, a taxpayer can only switch from the old system to the new one if they have no income from a business or number of businesses. This offers better flexibility to taxpayers who can choose a different tax regime based on their requirements.
Drawbacks:
The new tax regime introduces lower tax rates with lists of exemptions. It is good for people with low investments, but people who already invest a fair amount in tax-free savings schemes like PPF, NPS and claim deductions on them may obtain lesser benefits. The issue remains with the fact that even if they move to the new system with a lower tax rate, they will pay more tax as there are no exemptions for them to claim.
The new income tax system can also potentially lower household savings as many people will refrain from investing in tax-free schemes because of the exclusion of 70 common exemptions. Despite a direct reduction in the tax rate, it will still affect the long term savings of an individual.
Experts have also stated that the new income tax structure could also discourage investments in the real estate sector which is going through a crisis and won’t be a good thing for the sector that is trying to revive its position. It should also be understood that the investments made in housing property are a major tax saver for Indian households and making the full use of it can earn very high tax deductions. However, as there would be no such exemptions under the new tax structure, the real estate sector could experience falling demand. The insurance sector in India will also suffer from the new income tax regime as it will have to put more effort and money on advertisements to attract people to invest in the sector. Therefore, it may lead to reduced demand for insurance companies.
The benefits:
The new income tax regime benefits people with low investment policy schemes. It also offers seven lower tax slabs and anyone paying taxes without claiming exemptions under the existing system can benefit from paying a lower rate of tax. For example, taxpayers having gross total income of up to Rs 12 lakh have to pay more under the old system if they have investments that are less than Rs 1.91 lakh. Therefore, it is advisable to go for the new income tax regime if you invest less in tax saving schemes. There is also another benefit of switching over to the new optional regime is the fact that you don’t have to worry about complex filings which would lead to fewer mistakes in filing.
Finance Minister Nirmala Sitharaman has announced that the process under the new income tax structure will be much easier for taxpayers and hassle-free. if you are a person with no investments or a few investments to showcase, you will find it much convenient to file taxes under the new income tax system. It is also an optional scheme so people have the flexibility to switch over from one system to another after evaluating its benefits for the previous year. However, a taxpayer can only switch from the old system to the new one if they have no income from a business or number of businesses. This offers better flexibility to taxpayers who can choose a different tax regime based on their requirements.
Drawbacks:
The new tax regime introduces lower tax rates with lists of exemptions. It is good for people with low investments, but people who already invest a fair amount in tax-free savings schemes like PPF, NPS and claim deductions on them may obtain lesser benefits. The issue remains with the fact that even if they move to the new system with a lower tax rate, they will pay more tax as there are no exemptions for them to claim.
The new income tax system can also potentially lower household savings as many people will refrain from investing in tax-free schemes because of the exclusion of 70 common exemptions. Despite a direct reduction in the tax rate, it will still affect the long term savings of an individual.
Experts have also stated that the new income tax structure could also discourage investments in the real estate sector which is going through a crisis and won’t be a good thing for the sector that is trying to revive its position. It should also be understood that the investments made in housing property are a major tax saver for Indian households and making the full use of it can earn very high tax deductions. However, as there would be no such exemptions under the new tax structure, the real estate sector could experience falling demand. The insurance sector in India will also suffer from the new income tax regime as it will have to put more effort and money on advertisements to attract people to invest in the sector. Therefore, it may lead to reduced demand for insurance companies.
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