Pensioners, job starters, entrepreneurs to gain more from IT rate cut
New Delhi: Opting for the new tax rates proposed in the budget could be beneficial for job-starters, pensioners, entrepreneurs and those taxpayers unable to claim available deductions and exemptions under the current tax structure, government sources said.
Finance Ministry sources said that there are significant numbers of people, who for various reasons, are not able to spare money from their income to invest in the various saving instruments such as Provident Fund, pension schemes, interest on house loans, insurance, etc. and therefore are unable to take full advantage of all deductions.
“Therefore, they end up paying more tax in the old regime as against the new one. In the new proposed tax regime, such people will definitely be gainers,” an official said.
As per an estimate, the total number of taxpayers who claimed deductions less than Rs 2 lakh was 5.3 crores out of a total of 5.78 crore tax filers in the FY 2018-19. This includes deduction under section 80C (GPF, PPF, LIC Premium, etc), Section 80D (mediclaim insurance), section 80CCD(1B) (additional deduction of NPS), a deduction for housing loan interest and standard deduction. Further, only 3.77 lakh taxpayers claimed deductions exceeding Rs 4 lakh.
The data shows that less than 10 percent of taxpayers claimed deduction more than Rs 2 lakh.
Explaining that the migration to the new regime would be beneficial for a large number of taxpayers, the official said that a pensioner or senior citizen who need not make any investment in provident fund or buying a home may not be able to enjoy all deductions in the old system and hence may end up paying tax at the higher rate in the old regime.
“Whereas in the new regime, even if they take the exemption for the premium paid for the health insurance etc, still he would be a gainer in most of the income tax slabs,” he said.
The official added that MSME or an entrepreneur who runs his own business and not getting any benefits like LTC, various other food coupons, HRA, etc. may be able to find new systems beneficial.
Presenting the Union Budget for FY21, Finance Minister Nirmala Sitharaman on Saturday proposed to cut income tax rates and change slabs to lower tax incidence for those earning up to Rs 15 lakh a year.
She proposed a 10 percent tax on income between Rs 5 and Rs 7.5 lakh from 20 percent now.
Income between Rs 7.5 lakh to Rs 10 lakh will also attract a lower tax of 15 percent. For annual income between Rs 10 lakh and Rs 12.5 lakh, the income tax rate has been reduced to 20 percent from 30 percent.
Those earning Rs 12.5 lakhs to Rs 15 lakhs will pay 25 percent tax. The Finance Minister said that those earning over Rs 15 lakh would continue to pay the tax at the current rate of 30 percent. The new tax regime is optional and an individual taxpayer can opt for the structure that is beneficial for him.
A taxpayer opting for the lower tax regime would have to forgo all the deductions and exemptions availed by him in the old regime.