Budget 2020: Non-Salaried Taxpayers May Benefit More From New Tax Regime

Finance Minister Nirmala Sitharaman’s new income tax regime that offers lower rates to individuals who give up exemptions and deductions could benefit non-salaried taxpayers more than their salaried counterparts. That’s because such taxpayers enjoy fewer exemptions.

Assuming a non-salaried individual with an annual income of Rs 6 lakh makes tax-saving investments of Rs 50,000 in a year, such a person would pay the same tax under both the old and the new regime, according to BloombergQuint’s calculations.

Now assume a non-salaried taxpayer with an annual income of Rs 10 lakh who:

• Completely uses the Rs 1.5 lakh deductions under Section 80C.
• Takes a health insurance scheme with an annual premium payment of Rs 15,000.

The non-salaried person will have to pay Rs 82,680 tax under the old regime, about Rs 4,680 more than the tax payable under the new regime.

In comparison, a salaried taxpayer earning the same amount of money and making the same investments would pay only Rs 41,080 in tax under the old regime—about half of what a non-salaried individual pays. That’s because a standard deduction of Rs 50,000 and house rent allowance—two significant benefits available to a salaried taxpayer—are not available to others.

In this case, it’s assumed that the salaried individual would claim Rs 1.5 lakh as HRA benefit—about a monthly rent of Rs 12,500.

BloombergQuint’s calculations found a non-salaried individual with an income of Rs 20 lakh a year again stands to gain by moving to the new regime.

“For non-salaried non-senior citizen individuals, the new tax scheme might prove beneficial as the income level rises,” said Ameet Patel, partner at Manohar Chowdhry & Associates told BloombergQuint over the phone. “They get fewer exemptions under old scheme as compared to salaried. So, as we move to higher income, the tax saved under the new scheme will be more than the tax-saving forgone by not claiming deductions.”

Benefits Accrue To A Few

While the scenarios considered by BloombergQuint suggest that non-salaried individuals would benefit from the new tax regime at income levels of Rs 10 lakh and above, the number of such taxpayers is very low.

Data released by the Central Board of Direct Taxes in October 2019 for the assessment year 2018-19 listed the number of individual taxpayers with business income who filed returns at 8.7 lakh. That’s less than 2 percent of the total number of individual taxpayers who filed returns. As many as 1.9 crore individual taxpayers earning business income reported annual income of less than Rs 5 lakh.