Is the new tax regime beneficial to individual taxpayers in real terms?

Under NTR, salaried individuals should avoid exemptions like house rent allowance, leave travel allowance and deduction for specified investment/expenditure which are otherwise available under the existing/old tax regime (OTR).

Even though NTR provides for lower tax rates with varied income slabs, OTR is more popular, especially among salaried taxpayers. Below are some of the reasons why NTR is comparatively not as attractive as OTR:

– above taxable income 15,00,000 is taxed at 30% under both OTR and NTR

– Contributions to long-term investments and retirement savings plans (such as contributions to provident funds, insurance premiums, etc.) are not eligible for deduction under NTR, unlike OTR. These investments generally give better returns

Deduction for repayment of interest and principal components of housing loan in case of self-occupied property is not available under NTR.

– For salaried taxpayers, the pinch may be higher as the below mentioned exemptions/deductions are not available under NTR:

– Exemption on rental expenditure in lieu of house rent allowance

– Exemption in traveling expenses in lieu of Leave Travel Allowance/Assistance

, standard deduction to the max 50,000

– cut up to max 2,500 for tax on employment or profession tax

– For better understanding, see the example below:

Salaried taxpayers without income from business or profession can opt for NTR every year; However, for salaried taxpayers having income from business or profession, the option is available only once and cannot be changed subsequently.

NTR can be beneficial for taxpayers Who? Have not invested much or belong to low income groups. It can also be beneficial for those who want a hassle-free tax process without having to worry about keeping track of the exemptions/deductions being claimed. But despite the lower tax rates, the comparative tax outgo under NTR seems high and hence, does not seem very beneficial to the taxpayers.

A fair and tax-efficient single tax regime is the need of the hour in view of the increased expenses for individuals. upcoming union budget 2023 These challenges must be addressed and NTR reformed or a simplified single tax regime introduced.

The author, Deepashree Shetty, is Associate Partner – Tax & Regulatory Services, BDO India

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