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In an interview given to inmathi.com, tax consultants N Sundar and Arun Karunanidhi say that the new tax regime has more advantages rather than disadvantages. They are talking about the individual income tax proposals made in the Budget 2023-24 submitted in Parliament on February 1.
The buzz among salaried individuals across the country is the I-T exemption limit that has been raised to Rs 7 lakh. But there is a caveat applicable to the new tax regime introduced in FY 2020-21. Unless you opt for the old tax regime, the new tax regime will be the one you follow by default. This is the major change the Union Finance Minister brought in this year’s Budget.
What are the differences between two tax regimes? What are the disadvantages and disadvantages of both regimes? Which is better? All these questions were posed to Sundar and Arun.
The new tax regime was introduced three years ago to make citizens pay tax on real income without making claims for deductions and exemptions. But the new system has not been popular with taxpayers. So Finance Minister Nirmala Sitharaman has refined it this year. In this year’s Budget, she announced that there would be six income slabs, not five as earlier.
Unless you opt for the old tax regime, the new tax regime will be the one you follow by default. This is the major change the Union Finance Minister brought in this year’s Budget
Though the tax exemption limit has been raised to Rs 7 lakh, one can consider it as Rs 7.5 lakh in view of standard deductions including PF and children’s school fees. So, if you earn Rs 7.50 lakh per annum, that is, about Rs 60,000-plus a month, you will not have to pay any income tax. But last year, this income was taxed at Rs 39,000.
By way of explaining which of the two tax regimes would be better, Sundar says: “In terms of savings made for the purpose of claiming tax exemptions, taxpayers would normally opt for the old tax regime which encourages people to invest. In that respect, the old regime may be advantageous. But if your annual income is Rs 12 lakh, your income tax will be Rs 1,11,800 under the old regime even after claiming exemptions whereas it would drop down to Rs 85,800 under the new regime, even with no exemptions. So, the new tax regime is the better one.”
It has long been a practice to make investments purely for the sake of saving on tax. Tax exemptions that can be claimed on EMIs have also been a motivating factor for people to buy or construct houses. Now, with the new tax regime fine-tuned, there is no need for external investments for the purpose of claiming exemptions. In any case, savings solely for the tax purposes are not advisable as they are only incidental, says Sundar.
However, if you have excess funds to park in some investment schemes, you can go for PPF which is a safe bet as it offers 7.5 per cent interest. Plus, Sundar adds, in extreme cases where a court could attach a person’s assets in case of non-repayment of loans or some other such cases, it cannot attach the saved up PPF funds.
The new tax regime was introduced three years ago to make citizens pay tax on real income without making claims for deductions and exemptions
As for other options, rather than investing in fixed deposit schemes of banks, one can opt for mutual funds and Systematic Investment Plans (SIP) for better returns, he says, adding a word of caution that you must have thorough knowledge of the schemes as they do come with some risks and are subject to the vagaries of the stock market.
The new tax regime has dispensed with tax exemptions given on housing loans. Will this affect the housing loan industry? Arun says that people in the Rs 7 lakh income slab may not go for housing loans. But those in the higher slab, say, those in the above Rs 15 lakh income slab, will still opt for housing loans. The industry will not be affected. The only thing is that the agencies offering housing loans would have to offer loans at lower rates.
Regarding schemes for women, the Budget offers only a one-time new small savings scheme called Mahila Samman Savings Certificate for girls, which offers a 7.5 per cent interest rate. It has a partial withdrawal option available.
The government would prefer to bring all taxpayers under the new tax regime. Besides, the Budget is, in fact, moving towards taxing high-net-worth (HNW) individuals more than the middle-class, says Arun. For instance, if HNW individuals buy houses worth more than Rs 10 crore, they can claim rebate for Rs 10 crore only.
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