It is no secret, that since FinMin announced the Union Budget 2020, salaried Individuals have been upset. Prior to the Budget, there was a lot of talk about how this Budget will be a game-changer and how it will help cease the economic unrest and provide stability. Well, it is too early to call judgment but it looks like an Underwhelming Budget nonetheless!!
Let us Understand the Trends of past Budgets and how Salaried Individuals have been treated so far…
Honorable Late Finance Minister, Arun Jaitley made Salaried Individuals his Poster boy for the Budget. Huge reliefs were announced in the Budget for Salaried Individuals. A Standard Deduction (SD) of INR 40,000 was announced and the Medical Reimbursement of INR 15,000 and Transport Allowance of INR 19,200 were slashed.
In the Assessment Year 16-17, around 1.89 Crore salaried Individuals had filed their Reruns amounting to INR 1.44 Lakh Crore in tax revenues. The tax liability for Businesses was an average INR 25,753 per individual business whereas the tax liability for salaried Individuals was INR 76,306. To lower the Tax Burden for salaried Individuals Standard Deduction of INR 40,000 was introduced. Where it made the most impact was the fact that no proofs or bills would be required to avail the Deduction. This change was lauded dearly.
Anyway, Arun Jaitley garnished the cake for salaried Individuals with a cherry on top by reducing Tax for INR 2.5 lakh – INR 5 lakh to 5% from 10%.
Late FinMin made salaried women really happy when he reduced the EPF contribution for them to 8% from 12%. Women empowerment was made a priority by Jaitley and it reflected in his Budget.
All is not Sunshine and roses. This phrase was never more relatable when Arun Jaitley announced hiked cess of 4% from the previous 3%. The revamped cess now included Health and Education.
For Salaried Individuals earning upto INR 3.5 Lakh, rebate u/s 87A was reduced to INR 2,500 from INR 5,000.
The Budget for 2019 felt like a happy ending to a painfully bland movie. It was expected that Salaried Individuals will be given a lot of priority and so was the case…
There is a lot of good to talk about this Budget. For Starters, a full Tax Rebate u/s 87A (INR 12,500) was announced for Salaried Individuals up to INR 5 Lakh.
Apart from the Tax Rebate, Standard Deduction was increased from INR 40,000 to INR 50,000. This announcement could have made Salaried Individuals do a Mexican wave in their homes….pun intended!!. It was claimed that this increment will give benefits of INR 4,700 Crore to nearly 3 Crore salaried Individuals.
Deduction of INR 1.5 lakh u/s 80EEA for new home buyers was announced. Also, the Finance Minister announced rationalization on multiple commodities in the pre-GST regime.
For the environment-friendly individuals, an incentive was given out u/s 80EEB. Deductions upto INR 1.5 Lakh was given against interest taken on loan for electric vehicle.
In 2019, Two Budgets were presented i.e the Interim Budget on Jan 30 and the Union Budget on July 5. Unsurprisingly, in the aftermath of the Interim Budget what was left was confusion, confusion, and…..(you guessed it) more confusion.
Another pain point was the increased surcharge rate. The maximum Surcharge that an Individual paid on earnings above INR 1 crore was 15%. However, two more slabs were added at higher rates. The highest surcharge imposed was on Income above INR 5 Crore at a staggering 37%.
Anyways, we feel that Nirmala Sitharaman has given Taxpayers a choice to choose their preferred Tax Regimes as per their Financial Goals. Looks like the Government wants its citizens to take control of their own finances and plan accordingly.
Case 1 depicts that if you are a salaried Individual with Income up to INR 7.5 lakh, your Tax liability increases in the New Tax Regime as Total taxable income decreases in the Old Tax Regime because of various Deductions available.
As per Case II, if you fall under the High-Income slab your Net Tax Liability will be lower in case of the New Tax Regime.
Finance Minister Nirmala Sitharaman’s Budget in many cases was a do or die Budget. The pressure on her to revive our Economy is mounting, unemployment numbers are at all-time high whereas GDP is at a 13 Year low.
People wanted a Tax-Cut. Many renowned economists had predicted that a Tax-Cut would help revive the sluggish economy. But, against all wager, FinMin decided to pull a rabbit out of her hat!
She brought in an Optional Tax Regime. It is meant to boost the ailing economy, improve consumption, encourage investment and bring clarity to the people. looks like, she has left people all the more confused as to which Regime to Choose.
Btw: We have a Blog that Might help you decide which regime is better for you– Budget 2020: Current Tax Regime vs New Tax Regime causing a stir for salaried Individuals!
Apart from the ‘Which Regime should I Choose Conundrum?”, Salaried Individuals are left feeling ignored as a ‘Tax-cut’ didn’t happen. Now, they need to decide- Do they want to Claim Deductions? or Do they wish to have more Take Home Salary?. It’s a classic-Blue Pill or Red Pill situation!!
Salaried Individuals are disappointed as all Tax-benefits were scraped for New Home Buyers. And the biggest shocker of all is the decision of discontinuing 70 of the 100 Deductions that could previously be claimed Under Chapter VI A. This means that if an Individual decided to opt for New Tax Regime, he/she will have to forgo all Chapter VI A Deductions….that is a really tough choice.
P.S: If you are feeling Confused between the Regimes, we build a Tax Calculator which will help you decide what Regime suits you better.
All in all, we would suggest to not be confused between the two regimes. The decision for which regime to choose should be made on these two factors:
- The Income Slab you fall under
- Your Personal finance Goals.