Budget 2020 offers individuals the choice of paying tax under the new regime of lower income tax rates by forgoing the tax exemptions or continue to pay tax under the existing income tax laws by claiming the applicable exemptions and deductions.
To decode this dilemma of old tax regime vs. new tax regime and enable HR teams to solve employees' catch-22 situation around benefits and tax saving, People Matters and Sodexo recently hosted a webcast on Budget 2020: A guide to choose between Old and New tax regime.
The speakers, Prashant Maheshwari, AVP Taxation and Corporate Affairs, Sodexo BRS India and Srinath Krishnan, Country Manager, Total Rewards India, Hewlett Packard Enterprise, were driving the webcast on how the Budget 2020 will impact personal taxes and how HR can help employees in planning their finances.
Here are some of the guiding factors in deciding which tax regime will work better - Old or New?
With rising incomes, the consumption patterns of individuals' have changed from need-based purchases to experience-based indulgences. They also realize that financial independence is very important to leads a better quality of life. Financial Independence enables individuals to;
- Be prepared to manage contingencies
- Manage their everyday needs and wants
- Have the luxury of retiring at an early age where assets pay the cost of living
Budget 2020 has given tax - payers an option to continue with the existing tax regime or opt for the new one by forgoing certain exemptions and deductions.
Certain exemptions that will be available under both tax regimes:
- Non-taxable retirement benefits like PF/NPS withdrawal, Gratuity, Leave encashment
- Amount received on maturity of Life Insurance Policy
- Interest and maturity amount received from PPF
- Employer's contribution to the National Pension Scheme(NPS)
- Deduction for interest on housing loan in respect of let-out house property (Loss will not be allowed to be set-off under any other head of income. However, it can be carried forward)
- Exemption for Transport/Conveyance allowance
Here are some of the broad indicators to consider before shifting to the new tax regime.
- Most of the allowances & perquisites will be taxable under new regime barring few which would be notified in due course
- Will perquisites such as a car, mobile reimbursement, use of movable assets, insurance, etc. will be chargeable to tax?
- As many allowances have been notified through rules, relevant rules are to be amended, which will define tax on such benefits
- Look beyond the exemptions and deductions, keep holistic financial wellness in mind for the long run
Employees are dealing with financial strain -- and they may want some help from their employer to address it. So, what steps should the employers take to ease the financial stress on employees? The webcast highlighted the 7 ways in which, employers can play a crucial role:
- Understand employees requirements at various stages in their life-cycles through focus groups and feedback
- Help employees understand the new tax regime and its implications of choosing
- Work with payroll to make changes to the payroll systems and tax calculators
- Since the central government has provided an option to stay with the earlier tax regime, we expect employees to wait and watch
- Flexible Benefits are a great differentiator when it comes to onboarding right talent and also retains and motivate the existing workforce
- Review our existing programs basis employee preferences and utilization to see value in talent retention and attraction
- Focus on creating awareness around overall financial wellness focusing on planning rather than tax saving
With this announcement, it is of utmost importance to educate the employees by helping them select between the old and new tax regime. A lot of responsibility lies with the HR professionals to play a consultative role in guiding employees to choose the right option.