A taxpayer will have to weigh his options to analyse the actual benefit before opting for the structure where his tax is lower
Raj Khosla
While the rejig of tax slabs is a welcome move, we must also look at the fine print of the measure. The Budget has introduced three more tax slabs, which could put more money in the hands of taxpayers. Instead of being taxed at 20 per cent, income between Rs 5 lakh and Rs 7.5 lakh will be taxed at 10 per cent. Similarly, income between Rs 7 lakh and Rs 10 lakh will be taxed at 15 per cent instead of 20 per cent. Significant savings in tax will accrue for those earning up to Rs 15 lakh. Instead of 30 per cent, they will pay only 20 per cent on income between Rs 10 lakh and Rs 12.5 lakh. That straightaway translates to a tax saving of Rs 25,000. Another Rs 12,500 will be saved as income between Rs 12.5 lakh and Rs 15 lakh will be taxed at 25 per cent.
No exemptions
This is not as simple as it appears. Taxpayers will have to forgo all exemptions if they want their income to be taxed under the new slab structure. They won’t get any deduction for Section 80C investments, including the contribution to the PF and PPF, the SIPs in ELSS funds and even the life insurance premiums paid. Home loan interest and house rent allowance will also not be eligible for exemption.
The good news is that the government has given taxpayers the option to stay with the existing tax regime or switch to the new one. A taxpayer will have to weigh his options to analyse the actual benefit before opting for the structure where his tax is lower.
For investors, the big announcement is the removal of the dividend distribution tax (DDT). Till now, dividends were tax-free for investors but there was 15 per cent DDT to be paid by a company when it declared dividends. Also, dividends above Rs 10 lakh in a year were taxed at 10 per cent. While the DDT has been removed, dividends will now be taxed at the marginal rate applicable to the taxpayer.
One key measure is the hike in deposit insurance from Rs 1 lakh to Rs 5 lakh. This will ensure that even if a bank fails, depositors’ money would be safe. The limit of Rs 5 lakh is quite liberal and should cover almost 80 per cent of the depositors. The issue of deposit safety came into the limelight after the PMC Bank crisis in September 2019.
Disinvestment in the Life Insurance Corporation (LIC) will be a momentous event for the capital market. LIC is a money-spinner and its IPO will surely get lapped up by the markets. It will also help bridge the gap in the government’s disinvestment target. The company manages assets of close to Rs 30 lakh crore and has almost a 70 per cent market share in the life insurance space.
There is good news for home loan takers though. The Budget has retained the additional deduction of up to Rs 1.5 lakh on the interest paid on loans for affordable housings valued up to Rs 45 lakh. However, it would have been better if this deduction was not restricted to affordable housing but extended to all taxpayers.
(The writer is Founder and MD, MyMoneyMantra.com)Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.
