The new budget has brought in mixed reactions, especially amongst the salaried class. It would seem that every meeting or huddle either begins or ends with a budget discussion. It is true that many of us are awaiting clarity on certain aspects of the budget. So, what really changed in this budget? Let us analyse it, as we understand it today.
The budget made two schemes on the personal income tax front. The first scheme (old regime) is to retain the current tax structure with all its allowances, exemptions and tax slabs. This would allow those who had already enrolled in tax saving schemes to continue to enjoy those benefits.
In the second scheme (new regime), tax slabs were sliced more finely to introduce a couple of lower tax rates. The earlier non-existent 10%, 15% and 25% slabs have been introduced in addition to the existing rates of 5%, 20% and 30%. Section 87A being rebate for any tax on income below Rs.5 lakhs per annum has been retained, thereby making income earned upto Rs.5 lakhs per annum tax free. Obviously, those who earn more than Rs.5 lakhs and upto Rs.15 lakhs will move to lower tax slabs & will have something to cheer about. Alas, for those who are in the 30% tax bracket, please continue to be grumpy as there seems to be no change at all!
Apart from introducing new tax slabs and rates, the government has done away with all allowances that used to provide tax benefit. For example, items such as House rent allowance, leave travel allowance, meal allowance, etc have now been removed.
Additionally, the exemptions provided to employees for investments done under Sec.80 have also been done away with. For example, investments made in Public Provident Fund Schemes, NSCs, Tax-Saver Fixed Deposit scheme of banks, etc have all been removed with the exception of Sec.80CCD or savings done under National Pension Scheme (more clarifications awaited)
So, how does removal of allowances and exemptions be an advantage to employees? The justification provided by the government in support of their decision was that it would reduce paperwork, administrative hassles and confusion surrounding the rules or conditions related to these allowances and exemptions. Apart from that, it did not want to impose or dictate what one should do with their savings and investments, as exemptions were hitherto limited to a certain number of instruments or bonds only. With this removal, taxpayers have a wider choice for investing in any kind of instrument of their choice available in the market and not get influenced by tax-saving schemes only.
The budget has a clear intention of providing monetary gains to its citizens. One is to lower the tax burden on a majority of salaried personnel or income earners. Lower taxes would mean putting more cash in their hands. More cash on hand would provide citizens the financial liberty to purchase goods or services or perhaps in investment bonds too, which in turn, would provide a boost to the country’s economy.
Now, what should a payroll manager do at this juncture when confronted with a situation that would outwardly seem the government is taking a big risk at this juncture by distracting income earners to increase their spending rather than them investing for a better future? Well, just what the government expects you to do – tell the employees to do the right thing!
Users of GreytHR™ software need not worry about these changes that are happening as the systems will be configured to accommodate them well in time and based on the final notifications that come in from the Income Tax Department (Central Board of Direct Taxes - CBDT).
Do write to us on what support you expect from our systems for us to build it for you. Watch out for more on this topic from us soon.