How Personal taxes creates more hassles after Budget 2020.

In the Budget Speech of 2020, The Finance Minister (FM)  proclaimed before the nation that she will simplify the process of taxation of Individuals and also reduce their tax expense. In this regard, she provided right to choose  by  Individual taxpayer to either select conventional tax slab with all exemptions and deductions or else go with new reduce slab without any exemptions or deductions.   Given below the new tax slab rate with various exemptions.

Total Income	Conventional Tax Rate	New Tax Rate
Up to 2,50,000	-	-
250,001 to 500,000	5%	5%
500,000 to 750,000	20%	10%
750,001 to 10,0000	20%	15%
10,00,001 to 12,50,000	30%	20%
12,50,001 to 15,00,000	30%	25%
15,00,001 & above	30%	30%
Rebate of Rs. 12500 under section 87A for income less than Rs. 500,000	Available	Available
Deduction under chapter VIA which includes 80 C, 80G and 80D. (other than 80CCD(2) and 80JJA)	Available	Not Available
HRA under section 10(13A)	Available	Not Available
Allowance under section 10(14). (Conveyance allowance allowed)	Available	Not Available
LTA under section 10(5)	Available	Not Available
Interest on house property u/s 24(b)	Available	Not Available
Standard deduction of 50K	Available	Not Available

Thus by providing this kind of option the Individuals are now required to find out under which option his tax expense will be lower. In respect of captioned tax rate options following is my observation.

·         There is no standard formula available which can determine which option is good for the taxpayer. Each individual comes with different background and has different abilities to claim exemption and deductions. Hence it’s very difficult for any ordinary individual to decide its option and left with no choice to consult tax professional.

·         The new option demoralize saving habits amongst  individuals and accordingly there will be de-motivation to purchase any Life insurance policies, making an investment in PPF or NPS. This also demoralizes the purchase of new house property and also making a donation.

·         One of the conditions of availing new tax rates is that Individual has the option to choose every year the option in case they don’t have business income. In case of an individual having a business income, the selection of opting new tax rate will be valid for all subsequent years and hence he cannot go back to conventional tax rate slab in any subsequent years.    

·         Here people must know that dealing in share speculation is a business activity and not investment activity. Thus employees who are dealing in such activities must re-consider their decision as they cannot go back to the old tax scheme.

In a nutshell, the Individual tax structure is now more complex than it used to be. People who don’t have knowledge of tax laws or having limited knowledge will not be in a position to take any decision which results in increasing the dependency on tax professionals. 

Further, the employer requires to withhold Taxes (TDS) on the salary income earned by their employees. At present, there is no software available, which has the ability to support such multi-option tax structure and deduct TDS.   The FM  should come forward and remove all these practical difficulties.  

The FM  also put a ceiling on employer contribution to NPS, Superannuation and Provided Fund (PF).   Earlier there was celling of Rs. 150,000 on Superannuation which means employer contribution beyond Rs. 1,50,000  will be included in taxable income. However, no such celling was there for NPS and PF and any amount contributed by the employer towards NPS and PF were exempted in the hands of the employee.  Now from April 2020, for all the three scheme, the maximum ceiling of employer contribution is Rs. 750,000/-. Hence any contribution exceeding will be taxable in the hands of an employee even though he is yet to receive the income in his bank account.  Further, there will be taxation on withdrawals also.  Also, any acceleration due to income earned by this funds over and above the limit of Rs. 7,50,000 will be taxable.  In the one hand, it causes hardship to employees and on the other hand, it is difficult for employers to compute the same as they have to do TDS calculations as well.

Given below a few more proposals which will cause hardship to Individual taxpayer.

·         Dividend Income is no more exempt and now taxable.

·         Scope of Indian residency being accelerated by removing test of 730 days and reducing a minimum number of stay in India to 120 days in a year from 182 days.  Also, the condition of 7 years has been extended to 9 years.

·         There will be Tax collected at source on foreign remittance and overseas tour.  Thus individuals will pay more while making such payments.

From the above looks like FM is making tax more complicated and expensive for the individuals and hence it is advised to review the decision made by Government.