Income Tax in India has always been one of the most complicated systems of taxation. Even though the government of India has been making a number of evolutionary changes to the tax regime over the last few years, the current tax system is still complicated. Thanks to a sheer number of tax-saving provisions, which many people are either unaware of, or never qualified for at all!
Considering that spending growth is extremely necessary to ensure continuing economic growth, the government has introduced a completely new Income Tax System in the Union Budget 2020. While this New Tax System has completely done away with many tax exemptions that were available in the old system and have indeed introduced a progressive tax system, it will also run in parallel to the old tax system.
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One of the best things about this new tax regime is that for people who do not have any business, it will not stick to you if you choose it once. The exact quote from the Budget Memorandum is:
“The option shall be exercised for every previous year where the individual or the HUF has no business income, and in other cases, the option once exercised for a previous year shall be valid for that previous year and all subsequent years.”
This means that you can pick and choose the tax system to adhere to as long as there is no business income involved in the process. If you have business income and claim deductions and tax exemptions under the old scheme, you will be considered to have chosen to continue with the old tax system. You will have to stick to the old regime for your life unless, of course, the government changes the provisions of the Income Tax Act to allow you to make a choice once more. The only way to currently exit this freeze is to stop having any business income and getting a salary income for an entire year to move on to a different regime, which will present you with the choice of tax system once again. This is possible but is simply unfeasible for almost all people.
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Under this system, a few surcharges are also applicable:
The new Income Tax system is simpler as you will now be taxed at predefined tax rates. There is no provision of tax saving under any of the sections that were available under the old income tax regime. All your savings like Life Insurance, PPF, Medical Insurance, House Rent, Home Loan EMIs etc. will be considered as taxable under the new system.
The new system introduces taxes under the following brackets:
In addition to this, all the cess levies and applicable surcharges will continue as before.
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You have a business income and think that the older system of deductions will continue to work for you as well in the future as it has worked for you till date.
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