Budget 2020-21: The new personal tax regime would certainly be beneficial for certain categories of taxpayers like expatriates, who generally do not claim any exemptions or deductions, retired personnel etc
Union Budget 2020: The recent corporate tax rate cut had amplified individual taxpayers’ expectation from the Budget. Accordingly, the government proposed a new personal tax regime with concessional tax rates.
The rates of surcharge and education cess under the new regime would remain unchanged. Under the new tax regime, an individual taxpayer is not eligible to claim most of the exemptions and deductions currently available under the income tax law. Thus, an individual taxpayer is given a choice to either pay tax as per the current regime, or choose to pay tax as per the new regime.
It is pertinent to note that an individual taxpayer not having any business income can choose an option every year, and for others, the option once exercised shall be valid for all years.
However, one would have to assess the impact of foregoing exemptions and deductions despite the new tax rates appearing to be attractive.
A salaried taxpayer can, however, continue to claim exemption in respect of transport allowance granted to a divyang employee, conveyance allowance granted for official purposes, relocation allowance, per diem allowance as specified under Section 10(14) read with Rule 2BB of the Income Tax Rules, 1962 etc.
Apart from the above, business taxpayers need to forego additional depreciation claim, investment allowance rebate, tax holiday under Section 10AA etc. under the new tax regime. However, they can continue to claim certain deductions like deduction under Section 80JJAA (available in respect of recruitment of new employees), etc.
Thus, a taxpayer needs to calculate his/her tax liability under the current tax regime as well as under the new tax regime.
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In case the tax liability under the new tax regime is lower or the difference between the two is not material, a taxpayer can opt for the new regime, considering the administrative hassles would reduce under the new tax regime.
Further, a salaried taxpayer would be required to choose an option at the beginning of FY21 and inform the same to the employer so that the employer can withhold taxes accordingly.
The new personal tax regime would certainly be beneficial for certain categories of taxpayers like expatriates, who generally do not claim any exemptions or deductions, retired personnel etc. In case of such taxpayers who do not claim any exemption or deduction, there is a tax bonanza (savings) of up to Rs 78,000. In one stroke, the government has simplified the personal tax regime, which, in turn, would further help reduce disputes and litigation.
(With inputs from CA Nilpa Keval Gosrani.)
National Leader, Tax, Grant Thornton India