Updated: February 2, 2020 10:32:44 am
Sarang Vilas Dahiwal, a government contractor in Pimpri, Pune, is the sole earner in a family of six. While his income in a year ranges between Rs 15 lakh to Rs 20 lakh, the introduction of the new tax plan — announced in the Union Budget on Saturday — has forced him to think on whether he should continue with the existing tax plan or opt for the new one.
While Dahiwal said he expected that the government should reward honest taxpayers, he added that he is upset about the fact that there has been no change in the existing tax plan.
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Dahiwal has a home loan where he claims tax benefit on interest outgo of Rs 2 lakh. He also has a health insurance for his family, for which he pays a premium of around Rs 25,000 and claims tax benefit under Section 80C by investing in life insurance scheme and investing in public provident fund.
In aggregate, as of now, he claims deductions and exemptions on an aggregate amount of Rs 3.75 lakh and, thereby, saves taxes to the tune of Rs 1,17,000.
Under the new tax plan, Dahiwal will have to forego all the exemptions and deductions he currently claims. As a result, he will end up paying a total tax of Rs 195,000 as against the current tax outgo of Rs 1,56,000.
Post the announcement of Budget proposals, Dahiwal felt that the new tax plan may be beneficial for him as the tax rates announced by the Finance Minister were significantly lower.
He, however, said that he would seek the advice of his chartered accountant before he opts for the new tax plan proposed by the Finance Minister.
Dahiwal added he feels that the government should have increased the tax benefit on home loan interest payment as that would have reduced his tax outgo and left something extra for him to spend.
Does it make sense to switch?
Advice for Dahiwal
# Even as the Finance Minister announced that the new tax regime will provide substantial tax benefit to a taxpayer, she said that the benefits will depend upon the exemptions and deductions claimed by a taxpayer. While the FM said that a person earning Rs 15 lakh in a year and not availing any deductions will see his tax burden reduce by Rs 78,000 in the new regime, a tax work for Dahiwal shows that with the tax exemptions and deductions he claims, he is better-off staying in the existing taxation structure. His tax worksheet shows he would pay `1,56,000 under the existing structure (with deductions and exemptions), but would end up paying a tax of `1,95,000 under the new tax plan.
Who May Benefit from New Tax Plan
# An individual who earns Rs 15 lakh and does not have a home loan and only claims deductions under Section 80C and standard deduction, he would pay a tax of Rs 210,600 in the existing tax structure and pay a tax of `1,95,000 under the new tax plan. Thus he will end up saving Rs 15,600 under the new tax plan. However, if he does not claim deductions under Section 80C and standard deduction, then his tax outgo under the new tax plan reduces by Rs 78,000 under the new tax plan
# This goes to show that all individuals who don’t claim home loan exemptions may benefit under the new tax plan. If they don’t even claim other deductions, then their tax savings under the new tax plan only rises.
With Inputs from Partha Sarathi Biswas
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