Finance Bill, 2020 introduced one of biggest change ever in the Direct Tax History by providing different options of calculation of Income-tax for an Individual or HUF.
First time, the option has been given to an individual that how he/she want to calculate the tax, whether after considering all the incentives/deductions or want to enjoy the benefit of lower tax rates by forgo them.
The benefits of opting for the lower tax rates in the New Tax Regime can be summarized as follows:
1. The new income tax rate is beneficial for people with low investments in policy schemes.
2. The reduced tax rate would provide more disposable income to the taxpayer.
3. It’s an optional scheme so people have the flexibility to switch over from one system to other.
4. The exclusion of 70 exemptions also helps in containing income tax frauds.
However, there is no scheme/option where we can’t evaluate the other side. The cons of the new regime can be discussed as follows:
1. Salaried class people will not get much benefit in most of the cases as already eligible for some auto deduction e.g. Standard Deduction, profession tax, PPF etc. without any additional investment.
2. The new income tax regime can potentially lower household savings and also affect long term savings of an individual.
3. The new income-tax structure could discourage investments in the real estate sector being many incentives are related to investment in housing sector. Similarly Insurance sector will also have to suffer.
Employer Liability of withholding tax –
CBDT has issued a circular F.No 370142/13/2020- TPL dated April 13,2020, clarifying the liability of the employer for deduction of tax on payment of salary to employees. The gist of the same and the process we need to apply is as follows:
1. The employee should be given option to select between the current tax regime (with incentives & deductions) and new tax regime (without incentives and deductions).
2. The TDS should be deducted as per the option selected by the employee. In case, no intimation is made by the employee for selection of any option, the employer is required to deduct as per the current tax regime.
3. The intimation made by the employee is only for the purpose of TDS and can’t be modified during the year once it is made.
4. The intimation made by the employee would not amount to his final choice and the employee has option to change the choice at the time of filing of his return.