In Union Budget 2020, a new Income Tax Regime has been proposed with lower tax rates up to taxable income of Rs 15 lakh compared to the Old Tax Regime.
In the Union Budget 2020, Finance Minister Nirmala Sitharaman has proposed a new Income Tax Regime, in which there will be seven tax slabs with lower tax rates up to taxable income of Rs 15 lakh compared to the Old Tax Regime. However, unlike the old regime, there will be no tax deductions on investments and expenses under the new regime.
The proposed slabs and tax rates under the new regime are –
1. Up to Rs 2,50,000 – Nil
2. From Rs 2,50,001 to Rs 5,00,000 – 5 per cent
3. From Rs 5,00,001 to Rs 7,50,000 – 10 per cent
4. From Rs 7,50,001 to Rs 10,00,000 – 15 per cent
5. From Rs 10,00,001 to Rs 12,50,000 – 20 per cent
6. From Rs 12,50,001 to Rs 15,00,000 – 25 per cent
7. Above Rs 15 lakh – 30 per cent
Although the tax rates under the new regime are lower than the old regime, but will it be beneficial for the employees after forgoing all existing deductions and exemptions under various sections like 80C, 80D, 80G etc?
According to a survey of human resource (HR) and finance professionals across companies, a vast majority of them don’t think that the new optional income tax regime would be beneficial for their employees.
The survey conducted by HR specialist Mercer across HR and finance professionals from 119 companies found that as much as 81 per cent of their employees feel that the new tax regime will not benefit them.
As much as 80 per cent of the employers participated in the survey fear that the new tax regime would adversely affect the retirement savings behaviour of their employees.
Employees within the income brackets of Rs 5-10 lakh and Rs 10-25 lakh will be impacted by the new tax regime, feel 60 per cent of the respondents.
The employers also feel that the new regime would force those drawing higher incomes to look for other investment options, instead of taking up voluntary benefits from their employers.
“This would pose a two-fold challenge for companies,” it said.
Under the new tax regime, without tax incentives, organisations have to take innovative steps to ensure that employees save voluntarily, fear the employers.
“It will also create a complex task at hand while negotiating for a better rate for these benefits with the vendors,” the survey said.
Less than 30 per cent of their employees would opt for the new tax regime, feel 83 per cent of the respondents.
Around 64 per cent of respondents also expect a medium to high complexity challenge in introducing the new tax regime.
The HR heads are further worried that communicating to employees about the new tax regime will be the biggest challenge they will face.
The participants also feel that handling dual tax regime would be a challenge for their HR systems, which would also push the compliance cost up.
More than 80 per cent employers also feel that making employer contribution towards superannuation, national pension scheme and provident fund above Rs 7,50,000 will be taxable in the hands of employee u/s 17(2), will create a negative impact on the amount of money they are investing towards these schemes.
According to a PTI report, the survey covered financial services, automotive manufacturing, IT/ITes, healthcare, chemical/life sciences, consulting, telecom, FMCG/ retail, travel/logistics, and education.
Only 13 per cent of the participants anticipate a change in salary structure, while majority of them feel that the employers may continue with same salary structures with various components irrespective of the tax regime chosen by the employees.