I started my articleship in 1993 and have been filing individual tax returns for clients since then.
The current tax regime proposed by finance minister Nirmala Sitharaman in the Union Budget 2020 is, in my opinion, the most complex since I started filing tax returns.
Here are a few points at a glance:
1. We now have three different income tax slabs based on age. Those under the age of 60 years, those above 60 but less than 80, and those above 80 years of age. This is without going into any exemptions and deductions.
2. If an individual chooses not to avail of specified exemptions or deductions, s/he then there are two systems:
a. A person having business income
b. A person not having business income
A person without business income can exercise this option every year, but once business income is opted for, the person cannot switch back to old regime.
3. If the conditions specified changes then option will have to be checked again. Hence, effectively, one has to check and decide every year whether on can opt in or opt out of the new regime.
4. Some of the popular exemptions/ deduction, which will have to relinquished are:
a. Standard deduction for salary
b. Deduction under Section 80C i.e. equity linked savings scheme (ELSS), provident fund (PF), insurance premium, school fees, and principal repayment on housing loan.
c. Interest on housing loan for self occupied property or vacant property.
d. No loss will be allowed under house property income
e. Carry forward of past losses will not be allowed.
f. Mediclaim premium and expenses on medical expenses
g. Interest on education loan
h. Deduction for donations made under section 80G
i. Leave travel concession
j. House rent allowance (HRA)
k. Allowances to members of Parliament (MPs)/members of legislative assembly (MLAs)
l. Profession tax deduction for salary
m. Family pension deduction under section 57
A person needs to inform about opting in or out of this option every year at the time filing tax returns (if no business income) and by the due date for filing return if he has business income.
It would have been truly revolutionary if the 70 exemptions and deductions were removed and same slab rates for everyone. It would mean less for work for CAs but would prefer this any day.
(CA Nikhil Vadia has over 25 years of experience in direct and indirect taxation, internal audit, systems review and management consultancy.