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An Optional New Simplified Personal Income Tax Regime for Individual Tax Payers wherein the below slabs has been introduced subject to no deductions or exemptions:

Taxable Income (Rs. In lacs) Applicable Marginal Tax Rate (excluding surcharge and cess)
5 to 7.5 Lakhs  10 %
7.5 to10 Lakhs  15 %
10 to 12.5 Lakhs  20 %
12.5 to 15 Lakhs  25 %
Above 15 Lakhs 30%

The surcharge and cess has been continued as a result of which the effective tax rate can be 39% or 42.7%. Individuals opting to pay tax under the proposed new regime for personal income tax will have to forgo almost all tax deductions and exemptions which they were claiming in the current tax structure. The tax deductions which would not be available include Section 80C (Investments in PF, Long Term Bank Deposits, Life insurance premium, NSC), Section 80D (medical insurance premium), tax breaks on HRA and on interest paid on loan for self-occupied house property, donations, etc.  Without the exemptions and deductions, the new individual scheme may only be attractive for persons not having any major savings or housing loans.  As the scheme is optional for the taxpayers, it may be worthwhile to work out the tax liability under the old regime and new regime and then, may take an appropriate call for the same.

Deduction for interest on Housing loan (Proposed section 80EEA)

With a view to provide impetus on affordable housing, it is proposed to continue the deduction in respect of interest on loan taken for purchase of an affordable house (worth not above Rs. 45 Lakhs) up to Rs. 150,000. This is subject to the condition that the loan is being sanctioned during the period upto 31 March 2021 and the assessee does not any other residential house on the date of sanction of loan. This is in addition to interest deduction of Rs.  200,000 which can be claimed as interest on self-occupied property.

Dividend Tax

Dividend Distribution Tax has been abolished and now the shareholders have to pay the tax on such dividends. For  high income resident taxpayers, there could be high tax incidence due to maximum marginal rate of 42.7%.

Further, No other major reliefs have been announced for personal taxation and the thrust on increasing savings have turned into dust.

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Watch out for Direct Tax Disputes Resolution Scheme ( ‘Vivad  Se Vishwas’ Scheme)

The Sabka Vishwas Scheme to reduce litigation in indirect taxes has resulted in settling  over 1,89,000  cases. It is proposed to bring a similar scheme for the direct taxes. Under the proposed ‘Vivad Se Vishwas’ scheme, a taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided he pays by 31st March 2020.  Those who avail this scheme after 31st March 2020 will have to pay some additional amount. The scheme will remain open  till 30th June 2020. Taxpayers in whose cases appeals are pending at any level can benefit from this scheme. One should list all pending litigation and evaluate the scheme once announced to resolve pending litigation. The Scheme does not appear to be as attractive as the Indirect Taxes Dispute Resolution Scheme which provided for partial waiver of Disputed Tax (30% to 70%) apart from complete waiver of interest and penalty and immunity from prosecution.

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May 2024