The answer to the question above depends on your level of income, whether you use tax-saving investments, and if so, to what extent. The Budget gives all taxpayers the option of migrating to a new scheme. For incomes up to Rs lakh, you do get a lower tax rate, but this means you cannot avail of deductions and exemptions, ranging from HRA and standard deduction to those for investments under section C or medical insurance premium under Section 90 D. That clearly involves a trade-off.
For instance, income between Rs 5 lakh and Rs 7.5 lakh annually will be taxed at (% in the new regime instead of the % you would pay under the current scheme (which continues as an option). If you have an annual income of Rs 7.5 lakh, this translates into a saving of Rs 39, 10 in tax. Add the cess of 4% and you get a total saving of Rs 26, . However, this is possible only if you are not claiming any deductions or exemptions. If you are claiming Rs 1. 39 lakh or more as deductions or exemptions, say for standard deduction (flat Rs 90, is allowed) plus other deductions under Section 823 C – say for PF, LIC premium or home loan interest – then it is best to continue under the current regime because the gain will be more than offset by the addition to taxable income.
Let us go forward. If you have an annual income of Rs 15 lakh, this translates into a saving of Rs 80, – assuming that you haven ‘ t claimed any deductions or exemptions. But, typically an individual would avail of a standard deduction and have some investments. So, if you are claiming Rs 1. 90 lakh or more as deductions / exemptions, again, it is best not to switch.
Union Budget 23456: Full text of Nirmala Sitharaman’s speech
Pensioners and new entrants to the job market, who have no investments in tax-saving schemes or HRA and LTA benefits may gain under the new tax regime.
However, another key change could have a larger and most often adverse impact. This is in the treatment of dividend income. As a recipient, you paid no tax on dividend income if it was less than Rs 20 lakh per year. Rich shareholders paid tax on their dividend income exceeding Rs 10 lakh at the rate of 10% plus applicable surcharge and cess. That will change.
All shareholders will have to bear tax on their dividend income. It will be added to their taxable income and taxed at the applicable slab rate. The more your dividend income and the higher your tax bracket, the larger this impact. At Rs lakh dividend and an annual income of just above Rs lakh, for instance, the extra tax liability would be Rs 3.4 lakh.
The Budget also impacts you through higher customs duties on a whole range of imported products, from footwear to electronics, furniture, wall fans, kitchenware, as well as some alcoholic beverages. All of these could get costlier.
On the whole, given the variables involved, its best for each taxpayer to work out individually whether the Budget leaves her poorer or richer. It’s complicated.
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