The changes in the Union budget brought about to the income tax regime have drawn flak from many quarters. The finance minister has offered a lower tax rate but most taxpayers stand to lose a clutch of benefits if they were to forsake the exemptions due to them on various investments.
Anyone opting for lower rates would lose deductions on home loan interest up to Rs 2 lakh, deductions on home loan principal repayment, mutual fund investments, provident fund investments, life insurance policy premium, house rent, tuition fees and leave travel allowance of up to Rs 1.5 lakh apart from an additional standard deduction of Rs 50,000.
Of the total 5.78 crore taxpayers in the country, 5.3 crore claim deductions below Rs 2 lakh. In other words, only less than 10 percent of taxpayers take full advantage of the higher spectrum of deductions between Rs 3.75 lakh to Rs 4 lakh.
It is hard to say who stands to benefit from the new income tax assessment method. The changes are too complex to warrant a case-by-case analysis. Still we have devised a broad category of people who may actually be benefited from the new system.
The spendthrifts
If you live on the fast lane, splashing almost all your monthly pay, you could consider switching over to the new system. A typical salaried person taking home an annual pay check of Rs 6-7 lakh, usually claims at least Rs 3 lakh in tax deductions by investing in the prescribed forums. They even borrow to make investments to avail of the deductions while filing tax returns. They have no other go but to keep on investing since most of these investments run for terms ranging from five to 25 years. New-gen professionals who care not for any savings can’t avail of these deductions anyway. So they may expect lower rates of tax if they adopt the new system.
Paperwork phobics
You have to do a lot of paperwork to be eligible for the tax exemptions. You have to get hold of a housing loan certificate from the lender. You have to get all the papers in order regarding your investments in the Life Insurance Corporation (LIC), mutual funds, term insurance, school fees paid and documents related to your travels. No one is particularly fond of these activities which take away a lot of time and energy. If you do not want to go through all the hassles of going through the paperwork, you can switch over to the new system. Just pay whatever you are required and forget about deductions you could avail of.
The struggling folks
Not everyone may have the luxury of a carefree life. Most of us struggle to meet ends. They would do anything to save whatever little tax they can by investing. They would like to take a loan to be eligible for tax cuts but may not have the wherewithal to do so. They may be benefited from the new system. But keep in mind, you may be left without any savings even when you reach your retirement age.
The no-savings people
Investment vehicles are galore for people with dispensable income. Be it real estate, house, gold, equities or mutual funds, you have multiple avenues to invest your savings. There are people who do not want to think about all the nitty-gritty of investing. They have nothing to gain from the existing tax structure which provides incentives to people who do some investing. Those who do not want to go through the trouble of choosing an investment method can just go along with the lower tax rates offered by the new changes.
Some pensioners
The new income tax system will also benefit those pensioners who are not interested in savings even though they are left with dispensable income. They have been left without any means to save on taxes just because they had no plans to buy a house or invest in provident funds. They could opt for the lower tax rates in the new system.
