New I-T regime made attractive for high income individuals

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New Delhi, February 2

From next financial year, the new income tax regime will be default regime with the changes proposed in the Budget intended to not only narrow the gap with the old tax regime but make it more attractive for the higher income brackets not bothered about long-term savings.

The Budget has proposed many big changes in the new regime. There is now a standard deduction of Rs 50,000, raising the basic tax exemption limit to Rs 3 lakh and reducing the surcharge for the super rich. The number of slabs has been reduced while nothing has changed for those in the old tax regime. Moreover, people in the new tax regime with income up to Rs 7 lakh will not have to pay any tax.

For those who don’t want deductions and exemptions, the new tax regime has already become a more attractive choice with income of over Rs 5 crore annually.

But the new regime can also be an option for others as well. Individuals earning up to Rs 7 lakh will pay no tax in contrast with those earning the same amount under the old regime who will have to pay tax of Rs 22,901 after making payouts for house rent and investments under Sections 80C, 80CCD (1B) and 80D. Had there been no Budget concessions, new regime taxpayers would have had to pay Rs 33,800.

But for those earning Rs 10 lakh, the new regime taxpayer’s outgo is Rs 54,600 as against Rs 31,221 which means a substantial gap of over Rs 23,000. Had there been no sops, the outgo under the new regime would have been Rs 78,000.

However, the picture again changes for those earning Rs 20 lakh. The gap between the two regimes narrows to just Rs 6,000. And for those earning Rs 35 lakh, the gap is just 1% of the tax outgo. The tax outgo definitely is less under the new scheme for those earning Rs 55 lakh, mainly because the highest surcharge rate has been reduced from 37% to 25%.

The benefits under the old scheme, though applicable to fewer slabs, is premised on the use of a raft of concessions such as medical insurance, NPS, up to Rs 1.5 lakh under 80C etc. None of this is a prerequisite for the new scheme which, however, conveys the message that instant consumption is better than prudent term savings for a rainy day.