Budget 2020: Which Tax Regime Should You Opt For?

17 Feb 2020  Read 2771 Views

The budget simply welcomed a series of thumbs up and relatively higher criticisms. It's high time you understand the new tax regime and what it has in store for you. Now just picture the Avengers in a different scenario. In the climax, the powerful infinity stones are held by Thanos.

Whoever has it will possess the power with which they can control the entire universe. After a series of twists and turns, Iron man gets hold of the infinity stones. But let's say, rather than simply beheading Thanos and restoring the world, he placed two options for Thanos to choose. Similarly, holding the infinity stones of India in hand, the Government has come up with two bonanza options, proving wrong most of our expectations.

With an intention to revive the economic slowdown and to hit the 5 trillion target, the Finance minister announced budget. The new budget introduced a  list of adjustments to the tax regime. The new and old tax rates are as follows,

INCOME

NEW %

OLD %

Up to RS.2.5 lakhs

No tax

No tax

RS. 2.5 – RS. 5 lakhs

5

5

RS. 5 – RS7.5 lakhs

10

20

RS 7.5 – 10 lakhs

15

20

RS.10 – RS 12.5 lakhs

20

30

RS. 12.5 – RS 15 lakhs

25

30

Above Rs 15 lakhs

25

30

Yes, the new budget has lowered the tax rates. However, whether you make the switch or not totally depends upon you.

But what’s the catch?

If you are opting to switch, then you should bid farewell to all the exemptions which you received under the old regime. Basically, the Government intends to scrap off the exemptions in the long run. So the new tax regime does not provide any exemptions such as section 80C, 80D, etc. which was earlier provided under the income tax act 1961. Taxpayers who have now switched to the new regime can make it back to the old one in the next financial year. In short, you are provided with the option to choose between the two options every year.

So which  Tax Slab should you opt for?

Those who have a home loan to pay might opt to stick to the old one. On the other hand, those who wish to face less paperwork might make a quick swap to the new one. So the answer to it depends on individual needs and requirements.

Now let me quickly brief you through the pros and cons of the new budget in comparison with the old one. I hope that it will help you make your decision and choose between the tax regimes.

What do you get and what you don't?

  • The newly proposed tax makes you kiss goodbye to nearly 70 exemptions. To name a few, leave travel allowances, house rent allowances, contribution to the pension scheme, and so on.
  • The new tax regime has also abolished the DDT. Earlier, the companies and mutual fund institutions were required to pay a tax of 15%. So whatever dividend you received was after deducting tax. Further, if the dividend income of the individual exceeds RS. 10 lakhs, then you are liable to a 10% tax. Thus the taxpayers I most cases had to pay double tax. Hereafter the tax is charged in your income directly and the company will not be paying them.  Read: Effects of DDT Abolition on Investors
  • The contribution from your employer to your ppf, superannuation fund, etc. which exceeds 7,50,000 will be taxed.
  • The new budget also ensures a fast allotment of PAN without having to fill any application form with the assistance of the adhaar card.
  • A deduction on the home loan interest of about 1,50,000, which was applicable for loans sanctioned on or before March 31, 2020, was provided with a year's extension. So all those looking forward to owning a new house can do so as this is the right time.
  • The deposit and credit guarantee has been hiked from 1 lakh to 5 lakhs. So your savings account deposit is guaranteed up to 5 lakh.
  • If you have any tax dispute, then you can resolve it by June 2020 without having to pay any additional penalty.
  • NRI’s who don’t pay tax in their country will be liable to pay tax in India as per their tax slabs.

Weigh the various advantages and disadvantages you receive under both the tax slabs and make the shift accordingly.

Budgets happen to be a significant piece of the jigsaw puzzle. But with the economy facing one of its most crucial time, whether the budget will turn to be a historical one or not is something that could be answered only in the long run.

About the Author: Varishika Dinesh | 70 Post(s)

Varishika is on the verge of successfully completing B.Com. Nothing excites her more than reading books and watching movies. Business, finance, economy? You have her attention.

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