Consultants still working through complicated set of offerings put forth by government
The government’s budgetary efforts to make paying taxes a simpler affair may have had the opposite effect, say chartered accountants, who point out that individuals must now work out which of the two options that are on offer, are better for them.
Tax consultants around the country are still working through the complex set of offerings that have been put on the table during the budget by the government.
Most crucial are the personal income tax proposals. Under the government’s new proposals, individual taxpayers can opt to pay lower rates, but they must forego most of the exemptions that are available such as standard deduction, home loan interest deduction and leave travel concession allowances. In many cases they may be left with more cash if they take the exemptions instead of the lower tax rates now on offer.
Importantly, the new tax offer has added a layer of complication for taxpayers. “It’s definitely more complicated now as you will have to calculate your taxable income both with deductions and without to decide under which regime you are paying less tax,” says Delhi-based chartered accountant Sanjay Singh.
Whether it is beneficial for you or not will depend upon your income as well as the quantum of deductions. Also, if you are already invested in a scheme, such as a long-term life insurance policy, you will continue paying the premium, and hence using the exemptions makes sense.
“This is only useful for persons who are earning between Rs 5 lakh and Rs 15 lakh and not making any investments for the future,” says tax expert, Satyendra Jain.
For instance, if your income is Rs 15 lakh and the total deductions are Rs 2 lakh then you will pay less tax under the new regime. (See table below).
But if your income is Rs 30 lakh and your deductions are Rs 4,25,000 then you pay less tax under the old regime with deductions. (See table below).
Suraj Malik, partner, BDO India LLP says that individuals shouldn’t sacrifice their saving habits. “People who were saving will continue to do so. Government savings are considered safe. Individuals should continue in the regime which is stable and known,” he advises. The new regime, he feels, is for individuals who, due to high EMIs, don’t have much money left to save.
One crucial change is that under the new regime individuals will also have to forego the deduction under Section 24 which offers a deduction of up to Rs 2 lakh on the interest paid to service a home loan for a self-occupied property. This is in addition to the Section 80 deduction towards the principal component of the EMI.
While most existing home loan borrowers will continue to stick to the old regime, it may no longer be an incentive for newer buyers. Harsh Patodia, president elect of developers’ forum Credai, told The Telegraph: “There is a choice between having a good life and buying a property. We have to make it compelling to buy a property.” He said that a house is now a consumption item and no longer a speculative purchase.
Malik feels that people will allocate capital more rationally and not buy a house only to save tax. “You will buy a house if you need to buy a house, not only to save tax.”