Will companies give employees the option to choose between two salary structures based on a new income tax regime versus old?
New Income Tax Slabs and Rates 2020: Modi government has introduced optional new income tax slabs for the financial year 2020-21. The new income tax regime does away with a lot of common tax exemptions and deductions taxpayers avail in the old regime. Several components of your salary, which sums up as the Cost to Company (CTC), such as House Rent Allowance (HRA), PF contribution, etc. will no longer help in income tax saving in case the new Income Tax Slabs 2020 is opted for. In such a scenario, will companies give employees the option to choose between two salary structures based on a new income tax regime versus old?
According to Prashant Singh, Business Head- Compliance & Payroll Outsourcing at TeamLease, “There is intense deliberation happening with many clients and corporates about the salary structure. The companies are surely going to give an option of both.”
“In new-age organisations with the salary structure of less than Rs 10 lakh or Rs 15 lakh, people would like to go for the new option where they do not have investments including home loans and other expenses,” he told Financial Express Online. This includes primarily the retail/ FMCG and consumer goods industry, he feels.
Prashant Singh is also of the view that most of the employees working at various IT companies have higher salary slabs, along with the option to use various other benefits that are provided by the company. This is expected to help them save higher on tax. “Companies are exploring the idea of giving the employees another option but at the same time, it may increase the complications for them,” Singh added.
With few employees going for the previous structure and some going for the new structure, it is likely to add unnecessary man-hours deployment. The companies, however, are currently waiting for complete clarity on the implementation and the timeline of initiating the new structure, Singh said.
According to Navneet Rattan, Director, Organization, Performance and Rewards, Aon India, the government has decided to clean up the traditional tax structure. “In the immediate term, the decision is in the hand of consumers to opt for the tax structure they want and over a period of time, when we move to one tax regime, that is when some structural changes can be seen,” said Navneet Rattan.
The new tax regime may not benefit all the employees as they will have to give up the exemptions/deductions in relation to employment such as HRA, LTA, Standard Deduction, meal vouchers etc, says Kuldip Kumar – Tax Partner and leader PwC India Global. “Employees would also need to give up deductions like 80C, 80D, 80CCD(1B) etc. which are specific to an individual’s situation,” he tells Financial Express Online. “This would be the first year and the Government introduced it to move to a simpler tax regime that is free of any exemption and deductions, making things easier for the taxpayers. They have given a choice to the taxpayers to choose the new or stay in the old tax regime and that way this new tax regime will also get tested and will help the Government to decide whether it permanently needs to move to the new structure rather giving two alternate tax regimes in the longer run,” he adds.
Kuldip Kumar told Financial Express Online that corporates need not do anything with their pay structure and employees can decide on their personal situation which option will work from them. “Whether employers need to ask employees about their choice of new or old tax regime while doing the withholding is something which is not clear. Given only few days left for the start of the next financial year, It would be helpful if Government quickly clarifies this aspect as employers may need to make changes in their payroll software to implement the new regime as an option and to determine its withholding tax liability.,” Kumar adds.
Union Finance Minister Nirmala Sitharaman while presenting the Budget had proposed new alternate tax slabs of 10 per cent for a salary ranging between Rs 5 lakh and Rs 7.5 lakh, 15 per cent for a salary ranging between Rs 7.5 lakh and Rs 10 lakh, 20 per cent for a salary ranging between Rs 10 lakh and Rs 12.5 lakh, 25 per cent for a salary ranging between Rs 12.5 lakh and Rs 15 lakh, and 30 per cent for those that are above Rs 15 lakh, if some tax exemptions are not availed.