The new tax regime will save you trouble, not money

The Budget offers all taxpayers the option to migrate to a new income scheme of up to Rs 15 lakh that has lower tax rates but eliminates all exemptions. That clearly implies compensation.

For example, the income between Rs 5 lakh and Rs 7.5 lakh annually will be taxed with 10% in the new scheme instead of the 20% that would be paid with the previous scheme (which continues as an option). That translates into a saving of Rs 25,000 in taxes and includes 4% of cessation to a total saving of Rs 26,000 to an annual income of Rs 7.5 lakh. However, against this there is the effect that all exemptions are lost. That means you cannot make use of the Rs 50,000 or those available for the PF or LIC premium, etc., according to Sec 80C or the deduction available for mortgage loan interest payments. The current standard deduction pushes you back at Rs 10,000 in taxes and ceases and if your contribution of PF and other investments is, say, Rs 75,000, that is another Rs 7,800 lost from the previous tax. So, it would actually be better to keep the old regime. In fact, if your standard deduction, PF and other deductions total more than Rs 1.7 lakh annually, do not bother to change the regimes.



Similar calculations applied to progressively higher levels of income mean that at an income level of Rs 10 lakh your tax profit of Rs 39,000 would be offset if your lost deductions are greater than Rs 1.9 lakh and for income of Rs 15 lakh and more, if Can taking advantage of the deductions of Rs 2.5 lakh or more (which should be feasible at that level of income), it is better to remain in the old regime.

Live plus When making these calculations, you will also have to take into account a key stipulation: once you opt for the new low tax regime without exemptions, there is no going back to the previous one. So, if you don't have a lot of tax savings today, but anticipate that you will do so in the future, it still makes sense to keep the old regime. You will not win, but you will not lose either.

These changes in the personal IT regime, because they are optional, mean that it cannot be worse than before, even if the new scheme does not give you much to gain. However, another key change could have a greater and more frequent adverse impact.

This is in the treatment of dividend income. Existing laws taxed dividends at 15%, but imposed this tax on the company or distributed the dividend. As a recipient, you do not pay taxes on dividend income if it is less than Rs 10 lakh per year. Now, this will change. The company or MF will no longer be taxed by the dividend, but will be added to your income and taxed as part of it. Let's say your MF paid you a dividend of Rs 2 lakh.

In the previous regime, I would not have paid anything for this. Now, the payment could increase a little if the MF decides to transfer the tax profits, but its tax obligation on the dividend will be at its marginal tax rate. That means that if your total income is just above Rs 15 lakh a year, you will have to pay an additional 62,400 Rs in taxes.

The plus your dividend income and the higher your tax bracket, the larger this impact. At Rs 10 lakh dividend and an annual income of just above Rs 50 lakh, for instance, the extra tax liability would be Rs 3.4 lakh.

El Presupuesto también lo afecta a través de aranceles aduaneros plus altos en toda una gama de productos importados, desde calzado hasta productos electrónicos, muebles, ventiladores de pared, utensilios de cocina y algunas bebidas alcohólicas.

All of these could get costlier. On the whole, therefore, it’s plus likely that this Budget leaves you poorer rather than richer.

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