BUDGET INTRODUCES NEW TAX REGIME TO SIMPLIFY PERSONAL INCOME TAX STRUCTURE

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By: Vijay Kumar Verma, Group Editor-ICN World 

Over the years the annual financial budgets have been offering or restructuring tax slabs as well as introducing various incentives for tax reduction the number of which had reached 112. The introduction of such incentives had made the personal tax structure so complex that one needed to avail the services of a tax Consultant for filing return.
We find that the budget is always a subject of debates and discussions while the opposition parties are open to out rightly condemn it. The analysts have the option to be positive minded or not. It is for the first time that the union budget has attempted to simplify the personal income tax regime from the complicated web of incentives which were practically not being availed of fully by the common tax payers. The simplified budget takes the common tax payer out of the web of incentives and he can opt to file the simplified tax structure without availing the benefit of incentives or continue to be with the prevailing tax structure.
The income tax slabs have however been increased from the existing three to seven. To understand the comparison between the two options we can refer to the following table:

TAX SLAB      EXISTING NEW
0 – 2.5 Lac        Exempt Exempt
2.5 – 5 lac            5% 5%
5 – 7.5 lac           20% 10%
7.5 – 10 lac         20% 20%
10 – 12.5 lac      30% 20%
12.5 – 15 lac      30% 25%
Above 15 lac     30%   30%

We find that there is a clear attempt to provide significant relief to the individual tax payer by simplifying the law. In the new tax regime substantial benefits will accrue to the taxpayers depending upon the exemptions and rebates he was availing. In the case of an individual tax payer falling in the tax bracket of Rs.15 lac not opting for any incentives and rebates, he will stand to gain Rs.78000 by paying Rs.195000 instead of Rs.273000 as at present.
The normal tax exemptions being availed of by the tax payers were on account of deposits under various qualifying schemes, interest on home loans, education loans, medical expenditures etc. But not all taxpayers were in a position to avail of the incentives offered. With the number of tax incentives being reduced from 112 to just 42 certain rebates will still continue to be available in the new tax regime. These include not only retirement benefits but also schemes like NPS, EPF etc which the government has been promoting as a social Welfare measure also.
Among the individual taxpayers there is a salaried class who perforce contribute towards the provident fund which qualifies under section 80C Chapter VI, and also those who have availed need based home loans or home loans simply to avail the tax benefits. But such rebates were not accruing to all the taxpayers as they have many other social obligations towards the extended family etc. Then there are employees of unorganized sector who are not getting such benefits or those who are running small businesses, or surviving on commissions  or are dependent on interest income from their deposits alone. There is also a large number of taxpayers falling in the category of senior citizens who are retired from service and are not supposed to further make deposits in the qualifying schemes to avail of the rebates or avail home loans for interest benefits. For this class of taxpayers the new income tax regime will eventually stand to accrue benefits.
For others however there are options to continue with the old regime. But the Finance Minister has made it clear that the budget is a first step towards gradual withdrawal of tax incentives in future. Be aware that the dual tax regime may not continue for the next year.