While the nitty-gritty of the new tax regime is yet to be announced, the most pressing concern for ordinary taxpayer is about to impact on the savings. (Photo Credit: File Photo)
Union Finance Minister Nirmala Sitharaman announced a new tax regime during her Budget speech on February 1st in Parliament. Touted as simpler and lower taxation, the new regime will come into force from April 1, 2020 at the start of new financial year. The new system will exist along with the present taxation programme. While the nitty-gritty of the new tax regime is yet to be announced, the most pressing concern for ordinary taxpayer is about to impact on the savings. From the government’s point of view, the new tax regime is a win-win situation as it encourages more people to be tax-complaint and solves the crisis of liquidity crunch in the market.
However, for an ordinary taxpayer, the issue is about savings. A general consensus has been that with the habit of ‘forced savings’, the Indian middle class has been able to stave off the slowdown blues. From PF, to PPF, to ELSS to government bonds, the taxpayers were forced to save lot of money due to the income tax slabs. But the new tax regime keeps all these tax-saving schemes out of its ambit. The regime offers a flat rate. So, this leave us with the big question – Will new tax regime impact our savings? The answer is little more than a simple yes or no. On face of it, the answer may be a ‘yes’. Because, since there are no tax-saving schemes under the new regime, there won’t be any ‘forced savings.’ On the other hand, the answer can be a ‘no’ also. Because, if you opt for the new regime and you want to save, the government won’t take the money out of your pocket! Isn’t it?
The Union Finance Minister announced change in the income tax slabs revising income tax rates for earning up to Rs 15 lakh, while no tax will be applied on earnings up to Rs 5 lakh. The new slabs have significantly reduced the taxes for most of the brackets. Those earning Rs 5-7.5 lakh will now pay just 15 per cent, while those earning up to Rs 5 lakh in a year will pay no tax. If you are earning between Rs 10 lakh to Rs 12.5 lakh and between Rs 12.5 lakh and Rs 15 lakh, you will have to pay lesser tax than before.
The cut in income tax rates, which would help save about Rs 31,000 a year in tax for persons with annual income of up to Rs 17 lakh, was however conditioned on current exemptions and deductions including standard deduction for Rs 50,000 as well as the waiver earned on payment of up to Rs 1.5 lakh in tuition fee of children, and contribution towards insurance premium and provident fund, being given up.