Categories
Delhi News

Union Budget 2023: Will hiking basic exemption limit under new tax regime benefit taxpayers? Explained


Union Budget 2023 may look to tweak the alternate income tax regime in order to make it more attractive for individual taxpayers, says a news report. The Modi government is mulling the possibility of raising the tax free income tax slab from Rs 2.5 lakh at present to Rs 5 lakh under the new income tax regime, the report said.
How will this benefit salaried tax payers? Will a change in income tax slabs for FY 2023-24 under Union Budget 2023 make the concessional tax regime more lucrative? TOI asks experts to decode the math and also analyze what other steps FM Nirmala Sitharaman can take for taxpayers.

New Income Tax Regime: Existing Tax slabs

The alternate income tax regime was introduced in FY 2020-21 by FM Nirmala Sitharaman. It is subject to certain conditions – mainly disallowance of various deductions). The income tax slabs under this new alternate income tax regime are as under:

To further incentivize individuals to opt for this new optional tax regime, Budget 2023 may look at enhancing the basic tax exemption limit. This will increase the net disposable incomes and hence the spending/ investment capacity of individuals.

Union Budget 2023: Proposed New Income Tax Slabs Under Alternate Tax Regime

Surabhi Marwah, Tax Partner – People Advisory Services at EY India is of the view that increasing the basic exemption limit will lower the effective tax rate. “It does seem to appear that the adoption of the concessional tax regime has been low amongst individual taxpayers,” she tells TOI. “An increase in the basic tax exemption limit to Rs 5 lakh will lower the effective tax rates for individual taxpayers,” she says.
Also Read | Union Budget 2023: Why income tax slabs need to be revised
However, Marwah also advocates introduction of certain exemptions in the concessional tax regime to make it more lucrative for individual taxpayers. According to her, the following exemptions must be considered in the alternate tax regime apart from an increase in the basic exemption limit:
1. Standard deduction should be retained at Rs 50,000
2. Benefit of the section 80C/CCC/CCD/D deduction up to Rs 2,50,000 should be provided. The benefits for these sections should be limited to provident fund including PPF, qualifying life insurance products, interest on housing loan, pension policies, employees/self-contribution to New Pension Scheme and mediclaim insurance.
Parizad Sirwalla, Partner at KPMG in India points out that increasing the basic exemption limit under new tax regime to Rs 500,000 will not benefit the relatively lower income group. “Currently, the basic exemption limit under both the existing and the optional new tax regime is Rs 250,000. Also, resident individuals having taxable income up to Rs 500,000 are not effectively required to pay any tax as they are entitled to a tax rebate of Rs 12,500 or equal to the amount of tax payable (whichever is lower) under both the existing and new regime as well,” she substantiates.
For individuals with income slightly higher than Rs 500,000, the incentive to choose the new alternate income tax regime may be limited. “As an example, if an individual’s gross income was Rs 650,000, he would be neutral to the tax regime selection as he would have still been at NIL tax liability by investing Rs 150,000 in eligible investments under Section 80C of the Income Tax Act, 1961 (the Act),” Sirwalla tells TOI.
For higher income category taxpayers, the quantum of tax benefit under the new optional tax regime would depend on how the tax rate for subsequent income slabs are adjusted. KPMG’s Sirwalla elaborates on tow possible alternatives that the Modi government can consider after increasing the basic exemption limit to Rs 5 lakh.
Also Read | Budget 2023: How new income tax regime can be made more attractive
As alternative 1, post this recommended increase of basic exemption limit (to Rs 500,000), the tax rate of 10% could continue to apply for income between Rs 500,000 and Rs 750,000 and so on and so forth. In other words, there will be no income slab to which the 5% rate will apply. Hence, the tax slabs under the new tax regime would be as under:

In such a scenario, the below might be the proposed impact/ income tax savings on a per annum (p.a.) basis for an individual, basis the applicable taxable income:

  • For a taxable income of Rs 750,000 the income tax savings would be approximately Rs 13,000.
  • For a taxable income of Rs 2,000,000 the income tax savings would be approximately Rs 13,000
  • For a taxable income of Rs 6,000,000 the income tax savings would be approximately Rs 14,300;
  • For a taxable income of Rs 11,000,000 the income tax savings would be approximately Rs 14,950
  • For a taxable income of Rs 22,000,000 the income tax savings would be approximately Rs 16,250.
  • For a taxable income of Rs 55,000,000 the income tax savings would be approximately Rs 17,810.

Hence, as you will observe the tax savings under this alternative will range from Rs 13,000 p.a. to Rs 17,810 p.a. (base tax of Rs 12,500 plus applicable cess and surcharge).
Also Read | Budget 2023: How income tax burden of common man can be reduced; top 3 ways
As alternative 2, the rate of tax pertaining to each set of taxable income could also be decreased. i.e., post the recommended increase of basic exemption limit (to Rs 500,000), the 5% tax rate could be made applicable for taxable income between Rs 500,000 to Rs 750,000. Considering the same, the threshold limit for the highest tax rate (of 30 per cent) may be increased from 1,500,000 to 1,750,000 consequently.
Hence, the tax slabs under the new tax regime would be as under:

In such a scenario, the below might be the proposed impact/ income tax savings on a per annum (p.a.) basis for an individual, basis the applicable taxable income:

  • For a taxable income of Rs 750,000 the income tax savings would be approximately Rs 26,000.
  • For a taxable income of Rs 2,000,000 the income tax savings would be approximately Rs 78,000.
  • For a taxable income of Rs 6,000,000 the income tax savings would be approximately Rs 85,800.
  • For a taxable income of Rs 11,000,000 the income tax savings would be approximately Rs 89,700.
  • For a taxable income of Rs 22,000,000 the income tax savings would be approximately Rs 97.500.
  • For a taxable income of Rs 55,000,000 the income tax savings would be approximately Rs 1,06,860.

While the tax savings range cannot be determined under this alternative, the maximum tax savings under this alternative 2 can be Rs 1,06,860 p.a. (base tax of Rs 75,000 plus applicable cess and surcharge).
Sirwalla concludes that a careful evaluation will need to be done of various factors by FM Sitharaman before considering an increase in basic exemption limit under the new alternate income tax regime. Some of these factors are number of taxpayers falling out of the mandatory return filing requirement, benefit to common man, net tax collection foregone by the government etc.





Source link

For more information call us at 9891563359.
We are a group of best insurance advisors in Delhi. We are experts in LIC and have received number of awards.
If you are near Delhi or Rohini or Pitampura Contact Us Here

Categories
Delhi News

Union Budget 2023 for salaried: Why income tax slabs need to be revised; top 4 expectations for individuals


By Tapati Ghose
The Indian economy has been resilient during and post the pandemic, and is slowly returning to normalcy. From an individual’s perspective, the first expectation would be to spur investments and savings and the government would do well to channel these in the right direction. This could be put into effect in a few ways:
Expectation #1 Revision of tax slab rates:
As per current income-tax provisions, the highest slab rate (after including surcharge and cess) for income exceeding Rs 5 crores in India is 42.744%. This is significantly higher than some of the countries in Asia Pacific. To name a few- the highest tax rate for Hongkong is 17%, that of Singapore is 22%, while in Malaysia it is 30%.
The tax rates for individuals have not been changed since FY 2017-18, apart from the new tax regime, which is subject to onerous conditions. Hence, to give more purchasing power to individuals and provide some tax relief, it is expected that the highest tax rate of 30% be reduced to 25%, and the threshold limit for the highest tax rate be increased from Rs 10 lakhs to Rs 20 lakhs. With this, the highest slab rate (including surcharge and cess) may be reduced to 35.62% from 42.744%.
Similar changes may be considered under the new regime for annual income of Rs 15 lakhs and above as well.
Expectation #2 Increasing the limit for various deductions
With the intent to incentivise the lower and middle class that have faced the most hardship during COVID, the government is expected to relook at the deductions that are currently available, and that have remained unchanged for several years.
  1. Section 80C of the Act for payments/investments towards life insurance premia, contributions to provident fund, subscription to certain equity shares or debentures, etc., is capped at Rs 150,000. With increase in cost of living and increase in inflation, the government should look at increasing the limit under section 80C to Rs 250,000. This will have two-fold benefit – individual taxpayers would be willing to save more and in turn will benefit from a lower tax outgo, thereby increasing their disposable income to meet the rise in prices of various commodities.
  2. Section 80D – Deduction in respect of health insurance premium is capped at Rs 25,000/Rs 50,000. Considering the increase in the cost of medical treatment and insurances, the erstwhile limit under this section is expected to be revisited.
  3. Section 80TTA allows deduction of up to Rs 10,000 in the hands of individuals and HUFs, in respect of interest on savings account with banks, post offices and with co-operative societies carrying on business of banking. This benefit should be extended to all types of bank deposits including fixed deposits. Further, the limit should be increased from Rs 10,000 to Rs 50,000.
  4. Section 80EEA – In order to avail a deduction in respect of affordable housing, loans should be sanctioned during the period April 2019 to March 2022. With the rise in demand for residential real estate in metropolitan and Tier-II cities, it is expected that deduction be allowed for the following years as well. The condition for availing loan should be extended for at least 3 years i.e. up to 31st March 2025.
  5. 80EEB – Deduction in respect of purchase of electric vehicle is available only if loan has been sanctioned by the financial institution between April 2019 and 31st March 2023. The condition for availing such loan should be extended by at least 2 years i.e. up to 31st March 2025.

Also Read | Budget 2023: How income tax burden of common man can be reduced; top 3 ways
Expectation #3 Provide relief for expenditure incurred to work from home
The concept of a workplace has changed significantly, thanks to COVID. With homes becoming extensions of offices and the new workplace, employers need to ensure that employees, from administrative staff to senior management, are able to work efficiently and effectively. Facilities which in normal course are made available to employees in offices, must be extended to homes – not as benefits to employees, but to enable effective work. These facilities are not specifically called out as exempt in India’s taxation laws. It is crucial that this is clarified in the Budget to avoid litigation. Some areas of consideration are:
1) Support for infrastructure costs: These could include furniture such as ergonomic chairs, work tables, computers, power back up, OR could be
2) Periodic expenses: Internet charges, electricity bills, mobile expenses
3) Companies will be looking at alternatives to gym and crèche facilities in the offices
These may be provided as a reimbursement or as an allowance and should not be looked at as benefits that are taxable.
Expectation #4 – DTAA benefits at withholding stage
With travel returning to normal, employees have started moving across borders and will need to avail of relief under the Double Taxation Avoidance Agreement to avoid double taxation.
Section 192 of the Act provides for tax deduction at source on taxable salary, by the employer. However, it does not explicitly provide claiming DTAA benefit while calculating tax at source (TDS) in case of individuals.
Also Read | Budget 2023: Why FM Sitharaman should target reduction in fiscal deficit to GDP ratio
Typical benefits under DTAA would include the following:

  • Exemption of salary paid in India for services rendered outside India in case of individuals who qualify as a Non-resident (‘NR’) of India as per the DTAA
  • Foreign tax credit in case of individuals who qualify as Resident and Ordinarily resident (‘ROR’) of India.

Since the current provisions do not allow for relief under DTAA at withholding stage, higher tax is deposited which is claimed as refund at the tax return stage. It also poses hardship to employers such as cash flow and administrative challenges, in following up for refunds.
Section 192 should be amended to expressly provide that while calculating TDS at the time of payment of salary, benefit under DTAA should be provided for.
(The author is a Partner at Deloitte India. Views expressed are personal)





Source link

For more information call us at 9891563359.
We are a group of best insurance advisors in Delhi. We are experts in LIC and have received number of awards.
If you are near Delhi or Rohini or Pitampura Contact Us Here