NEW DELHI: The Union Budget is around the corner and given the tough year due to the pandemic, a salaried taxpayer’s expectations are high. The year 2020 had posed a lot of challenges such as salary cuts, additional expenses due to remote working, inability to claim certain exemptions like fuel reimbursements, house rent, etc. Given this, the taxpayers are expecting increase in exemptions/ deductions from the government in the upcoming budget.
Last year’s budget introduced the new concessional tax regime that offers an individual the option to choose lower tax rates in lieu of forgoing certain tax exemptions and deductions.
Some of these benefits include standard deduction, exemption towards house rent allowance, leave travel assistance, house property loss, and deduction towards provident fund contributions and life insurance premiums.
The new regime, effective from financial year 2020-21, prescribes tax rates ranging from 5% to 30% with the highest tax rate applicable for income above Rs 15 lakh. This option is beneficial in those cases where an individual has fewer exemptions and deductions to be claimed. Individuals with higher income levels and tax-saving investments qualifying for deductions or exemptions may not find the new regime attractive.
Evaluation of certain factors will be important for payers are looking for relaxations like extension of benefit to non-senior citizens (under the current law, senior citizens are allowed deduction of up to Rs 50,000) for medical expenditure under Section 80D, increasing the cap of interest on housing loan, extension of additional benefits available to first-time homebuyers, exindividual taxpayers before deciding whether to continue with the old tax regime or opt for the new tax regime.
Individuals with limited deductions or exemptions would have the advantage of more tax savings by opting for the new tax regime. The level of tax savings would depend on the income levels and evetending the benefit of the newly introduced LTC cash voucher to the next fiscal, addiry individual would have to undertake a fact specific evaluation keeping in mind tional investment opportunities for availing tax benefits through investment in infrastructure bonds etc. Given the varied profile of taxpayers, there exists a case for coexistence of both the regimes going forward.
- Amarpal S Chadha(The author is Tax Partner, EY India. Shanmuga Prasad, Senior Tax Professional with EY, has also contributed to this article. Views are personal.)