Deloitte’s Divya Baweja on how the new tax regime will impact the common man

"Tax slabs have been reduced to five from six earlier. There have been changes in the slabs. Also, They have proposed a standard deduction of Rs 50,000 being available under the new tax regime which was not there earlier. There is also a deduction towards pension of Rs 15,000 under the new tax regime which was not there earlier," says Divya Baweja, Partner, Deloitte India.

I want to understand all the major announcements on the personal tax front that will impact a taxpayer.
Major changes have been made in the new tax regime primarily because the government did not see many takers of the simplified tax regime and therefore, the focus of the government has been as in the past also to see how they can simplify the laws, simplify the tax structure. So, the biggest change is that earlier there were six tax slabs under the simplified tax regime and now there are five slabs.

There have been changes in the slabs also. Now it is up to Rs 3 lakh annual income, Rs 3-6 lakh, Rs 6-9 lakh, Rs 9-12 lakh and Rs 12-15 lakh. Earlier, when I was looking at any income above Rs 12.5 lakh, it would go up to 25%, now it is 20% and above 15 lakh, it is 30%.


They have proposed a standard deduction of Rs 50,000 being available under the new tax regime which was not there earlier.

There is also a deduction towards pension of Rs 15,000 under the new tax regime which was not there earlier. So clearly, steps are being taken by the government to make the simplified tax regime more attractive. The surcharge has been reduced to 25% on high income slabs. People who were earning above Rs 5 crore, were getting taxed at 42.73%. They will now get taxed at 39%, which is almost 4% saving for them.

What the government is also proposing is that the new tax regime becomes the default regime which means that is the regime which the employer would need to follow unless the employee wants to go with the old regime. But what is really important is that one needs to compare the old regime and the new regime and see whichever is more beneficial and then go ahead and inform the employer so that the taxes can be paid on those accordingly.

Another important change is that if earlier the tax rebate was available for income up to Rs 5 lakh, that means there was no tax payable. Now the government has proposed Rs 7 lakh tax rebate up to which no tax is payable. But if you add a standard deduction of 50,000 on top of it, then it becomes Rs 7.5 lakh.

These are some of the important changes which impact a common man. There are separate changes which are there in terms of capital gains where if you are selling any property, then the deduction under 54 and 54F or you sell any capital asset, if you are reinvesting, the limit has been put to Rs 10 crore. Earlier there was no such limit.

If anyone is contributing towards life insurance in aggregate, which is more than Rs 5 lakh and if the premium is more than Rs 5 lakh in aggregate, then whatever money is realised during the lifetime of the person who is insuring that will be taxable, subject to deduction of the premium. And if you have claimed a deduction under 80C for the premium paid, then to that extent, there will not be a deduction.

These are the broad changes which the government has brought about in the personal taxes for the taxpayers. These are the key ones which one needs to bear in mind. One last important one is also in the context of double deduction.

What happens is that people who have taken home loans and were claiming deduction for the interest income when they were calculating the income from house property and when they were selling those properties, were taking the deduction for the entire cost including the interest. Now the interest cost for which you have availed a deduction while computing your income from house property will not be available as a deduction anymore when you look at any of the sales transactions for the purposes of capital gains.

So these are the key changes which are there from a personal tax perspective.