Cartoonist: Satish Acharya
Text: Sify Finance
Nirmala Sitharaman's Gift for India: A Confusing Tax structure!
A nation rapturously awaited, for a Finance Minister, a Nari to empower. Empower the middle-class, ease the burden on Income Tax, and offer something to cheer the middle-class. And, Voila! Interest Rates have been revised. The demand was to tweak tax slabs, and Amen, it has delivered.
The Finance Minister perhaps wanted to keep the best for the last. She announced the reforms on taxation so last, that it appeared only after the mild-shock over the hotly-debated proposal of LIC divestment via an IPO.
Going by Nirmala Sitharaman's budget speech, the income tax act was a "burdensome" process. A "new simplified income tax regime, where in income tax rates will be significantly reduced for those who forego certain exemptions," is what she added.
Here are the new slabs Sitharaman proposed:
•Earning up to Rs 5 lakhs? 5 percent rate. Annual salary of Rs 2.5 lakhs is exempted from taxation.
•For those earning between Rs 5 lakh and Rs 7.5 lakh, the new taxation rate is 10 per cent. Previous Regime it was 20 per cent.
•For those earning between Rs 7.5 lakh to Rs 10 lakh, the tax-rate is 15 per cent. Previously this was 20 percent.
•Earning between Rs 10 lakh and Rs 12.5 lakh, income tax rate has been reduced to 20 per cent from 30 per cent.
•For Rs 12.5 lakhs to Rs 15 lakhs salary earners, the new tax regime proposes a slab of 25 per cent tax.
•Those earning above 15 lakhs would continue to pay the tax at the current rate of 30 per cent.
That's about 6 slabs. How additional slabs can lead to ease in compliance and better revenue generation is beyond initial grasp. Would it not lead to more disruption for Tax officials? Would it not lead to more confusion? Coming back to the slabs.
To clarify on the slabs, the Finance Minister offered an example saying, "a person earning Rs 15 lakhs per-annum and not availing any deductions whatsoever will pay Rs 1.90 lakhs as compared to Rs 2.73 lakhs in old regime. The tax will be reduced by a huge margin."
The new regime will help the government add tax collection of Rs 40,000 crores.
So? Feeling happy? Victorious? and top of the world? Time to cull your enthusiasm! The new tax regime is optional. To avail the benefit of lower tax rates, one will have to forego several standard deductions. Read the following carefully to understand the tax-man's play.
A new Section 115 BAC is being introduced whereby an individual and HUF can opt to pay tax as per the new tax rates in case they forego all exemptions and deductions which include deduction under Section 80C of PF, LIC etc, standard deduction, LTC, house rent allowance, minor income exemption under Section 10(32), interest deduction on home loan under Section 24(b) in respect of self-occupied house, deduction under Section 57 (iia) of 1/3rd of family pension and also other deductions available under the act.
This essentially means that the following deductions will not be available as part of the latest tax regime:
Some important exemptions/ deductions not available under new regime: (section 115BAC)
•(i) Leave travel concession as contained in clause (5) of section 10;
•(ii) House rent allowance as contained in clause (13A) of section 10;
•(iii) Some of the allowance as contained in clause (14) of section 10;
•(v) Allowance for income of minor as contained in clause (32) of section 10;
•(vii) Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in section 16;
•(viii) Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23.
(Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);
•(ix) Additional deprecation under clause (iia) of sub-section (1) of section 32;
•(x) Deductions under section 32AD, 33AB, 33ABA;
•(xiii) Deduction from family pension under clause (iia) of section 57;
•(xiv) Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc).
What can be claimed?
The new regime says deduction under sub-section (2) of section 80CCD (employer contribution on account of the employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.
The following can also be claimed:
•(a) Transport Allowance granted to a divyang employee to meet the expenditure for the purpose of commuting between place of residence and place of duty
•(b) Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office;
•(c) Any Allowance granted to meet the cost of travel on tour or on transfer;
•(d) Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.
The options can be exercised while filing returns in case one does not have any business income. For other cases, the option required while filing return for assessment year 2021-22, and once exercised, it will be irreversible.
For those wondering why this system was brought into place, you should watch what the Finance Minister said in interviews on the day of the Budget to several media outlets.
Sitharaman said that the idea is to "gradually remove all the exemptions (doesn't reveal by when)."
"While exemptions go, we will offer an attractive rate," she adds.