Tax Computation – 2 regimes

India’s Minister of Finance and Corporate Affairs Smt. Nirmala Sitharaman, on February 1, 2020 tabled the Union Budget for the FY 2020-21 in the Lok Sabha. She announced a new income tax regime in addition to the existing one, to provide relief to individual taxpayers. 

However, this new regime is optional and the taxpayers can choose between the old and the new, basis their suitability. The new regime has foregone certain deductions and exemptions. The tax rates have been reduced, but taxpayers will have to forego exemptions when choosing the new tax regime.

Let us take a look at the tax rates of individuals whose age is less than 60 years under both the regimes:

Income tax slabsTax rate (Old Regime)Tax rate (New Regime)
Up to 2.5 lakhsNilNil
2.5-5 lakhs5%5%
5-7.5 lakhs20%10%
7.5-10 lakhs20%15%
10-12.5 lakhs30%20%
12.5-15 lakhs30%25%
Above 15 lakhs30%30%

From the above table, it is evident that the tax rates are lower in the new regime than the old regime. But, there is a list of exemptions and deductions that has to be conceded by the taxpayers. This list includes but is not limited to the following:

i) Leave Travel Allowance (LTA)

ii) Conveyance

iii) House Rent Allowance (HRA)

iv) Uniform Allowance

v) Helper allowance

vi) Professional tax

vii) Standard deduction

viii) Other special allowances [Section 10(14)]

ix) Interest on housing loan (Section 24) on self occupied property

x) Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJA)

Savings calculation based on income

PARTICULARSOld Tax Regime(Rs.)
Gross Income15,00,000
Less: Deductions- 
      U/S 80C (Investment in PPF)1,50,000
      U/S 80D (Medical Insurance – Self, spouse, children)25,000
      U/S 80TTA (Interest Income from Savings account on a bank)10,000
Taxable Income13,15,000

TAX ON TAXABLE INCOME (OLD TAX SLAB)(Rs.)(Rs.)
At normal rate, on the income of Rs. 13,15,000:  
Up to 2.5 lakhsNil 
2.5-5 lakhs @5%12,500 
5-7.5 lakhs @20%50,000 
7.5-10 lakhs @20%50,000 
10-12.5 lakhs @30%75,000
12.5-13.15 lakhs @30%19,500 
Total 2,07,000
Add: Cess @4% on Rs. 2,07,000 8,280
Tax Liability 2,15,280

From the above illustration, it is evident that taxpayers can reduce their taxable income by investing in tax saving instruments such as Provident Fund, Medical Insurance, etc. that appear as deductions under section 80C to 80U of the Income Tax Act, 1961.

PARTICULARSNew Tax Regime (Rs.)
Gross Income15,00,000
Less: DeductionsNil
Taxable Income15,00,000

TAX ON TAXABLE INCOME (NEW TAX SLAB)(Rs.)(Rs.)
At normal rate, on the income of Rs. 15,00,000:  
Up to 2.5 lakhsNil 
2.5-5 lakhs @5%12,500 
5-7.5 lakhs @10%25,000 
7.5-10 lakhs @15%37,500 
10-12.5 lakhs @20%50,000 
12.5-15 lakhs @25%62,500 
Total 1,87,500
Add: Cess @4% on Rs. 1,87,500 7,500
Tax Liability 1,95,000

From the above illustration, having regard to the income level and the deductions being claimed by the taxpayer, it is possible that taxpayers can save money because of the low tax rates of the new regime, however the same needs to be evaluated on a case-to-case basis.

Tax rates under both the regimes for senior citizens

Tax rates for individuals whose age is 60 years or more but less than 80 years (Senior citizens):

Income tax slabsTax rate (Old Regime)Tax rate (New Regime)
Up to 2.5 lakhsNilNil
2.5-3 lakhsNil5%
3-5 lakhs5%5%
5-7.5 lakhs20%10%
7.5-10 lakhs20%15%
10-12.5 lakhs30%20%
12.5-15 lakhs30%25%
Above 15 lakhs30%30%

Tax rates for individuals whose age is 80 years or more (Super senior citizens):

Income tax slabsTax rate (Old Regime)Tax rate (New Regime)
Up to 2.5 lakhsNilNil
2.5-5 lakhsNil5%
5-7.5 lakhs20%10%
7.5-10 lakhs20%15%
10-12.5 lakhs30%20%
12.5-15 lakhs30%25%
Above 15 lakhs30%30%

The Government has offered two types of regimes for tax computations for individuals– the old and the new system. The taxpayers should scrutinize and study both systems before opting for one. They should take into consideration their salaries, expenditures, savings, etc to select the system that is suitable for them. 

Disclaimer: This blog post is based on the provisions of the Finance Act,2020 as passed by the Parliament. Any subsequent notifications have not been factored into this post.

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Impact of the Union Budget 2018 on Individuals

The Finance Minister, Arun Jaitley, announced the Union Budget 2018 on 1st February 2018 with components possessing the potential to have a transformational influence on various sectors of the economy. The current Indian economy has reached US$ 2.5 Trillion and is on its way to becoming the 5th largest in the world. GDP is projected at 7.4 % while the number of taxpayers has increased from 6.47 crores to 8.27 crores and a direct tax revenue growth rate of 18.7% has been achieved as of January 15th. The Union Budget is poised to leverage this upward trajectory and provide the impetus for further development at a macro and micro level. Many of the provisions in the Budget directly impact the daily life of a common man. This blog intends to dwell upon these provisions.

Health, Housing and Employment Receives a Major Boost

NHPS (National Health Protection Scheme) dubbed as the world’s largest government-funded healthcare program will be extended to provide up to ₹5 lakh towards hospitalisation for 10 crore families and ultimately 50 crore actual beneficiaries from underprivileged backgrounds.

Affordable Housing Fund (AHF) has been announced to ensure housing for all by 2022. Under this program, 51 lakh houses in 2017-18 and 2018-19 each will be constructed in rural areas with 37 lakh houses in urban areas.

₹40,000 crores worth of concessions were announced for senior citizens. The annual exemption limit on interest income from fixed and recurring deposit schemes including small savings instruments has been increased from ₹10,000 to ₹50,000 in addition to increasing the ceiling for Section 80D from ₹30,000 to ₹50,000.

To facilitate employment generation, Government will contribute 12% of wages to EPF for 3 years. The Finance Ministry has also reduced EPF deduction to 8% for women employees thus significantly increasing their take-home salary while maintaining employer contribution at 12%.

A Huge Fillip to Travel and Transportation – Growth and Modernisation

Travel and transportation received a huge fillip across roads, railways and civil aviation. ₹1,48,528 crores have been reserved for boosting railway network capacity and gauge conversion. Over 4000 km will be electrified in addition to redeveloping over 600 major railway stations and progressively equipping all stations and trains with Wi-Fi and CCTV. ₹17,000 crores have also been allotted for augmenting Bangalore’s suburban railway network. The Government will quintuple the number of airports to 124 and connect hitherto unserved 56 airports and 36 heliports under UDAN, the regional connectivity program.  Around 9000 km of highways will be completed by the end of FY 2017-18 and over 35,000 km of interior roads will be completed in Phase 1.

Digital India – Integrated Education and Research – Major Focus

Under the massive ₹3,073 crore Digital India Program, over 5 lakh Wi-Fi hotspots will be set up to provide broadband access to 5 crore rural citizens. This opens up an avenue for individuals in rural India to access formal finance from digital lenders via the internet. New centres of excellence in the areas of AI, Big Data, Quantum communication and Internet of Things (IoT) will be established to boost indigenous intellectual capital in these crucial areas. An additional ₹14,500 crores have been earmarked for strengthening telecom infrastructure including BharatNet. To harness emerging technologies, particularly 5G, an indigenous Test Bed at IIT, Chennai will receive ₹135 crores.

The Government has launched a new program RISE (Revitalization of Infrastructure and Systems in Education) funded by a non-banking financing agency HEFA (Higher Education Financing Agency) with ₹1 lakh crore. In higher education, under the Prime Minister’s Research Fellow Scheme, 1000 B.Tech students will be identified and facilitated to complete PhD at India’s prestigious institutes.  Up to 24 new medical colleges are to be started and upgrade of several existing colleges was announced to ensure at least one Government College for each state in India. Two new schools of planning and architecture will also be set up in addition to 18 more IIT/NIITs.

Personal Tax

On the personal income tax front, there are no new changes in income tax slabs or structure.  However, a standard deduction of ₹ 40,000 will be introduced in lieu of transport and medical allowances while a higher allowance will be allowed for disabled individuals. From April 1, 2018, long-term capital gains of more than ₹ 1 Lakh will be taxed at 10% though gains until January 31, 2018, and will be grandfathered. Dividends from equity Mutual Funds will now attract DDT to perhaps discourage investors investing in Equity funds primarily for dividends. In an effort to promote gold as an attractive asset class, the existing Gold Monetisation Scheme (GMS) will be made more investor-friendly and a network of regulated gold exchanges will be set up.

Balanced Budget

Though the budget was projected as agriculture-oriented and farmer-friendly, it is balanced and well-intentioned. Huge boost to expanding and upgrading transportation infrastructure especially the railways and supporting underprivileged with healthcare, housing and employment are the cornerstones of this Union Budget.  Substantial measures in the areas of digital economy and education pave the way towards India becoming an economic superpower.

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Important GST Definitions, Terms and Glossary

The GST is ready for implementation and brings with it a slew of changes that indirect tax payers and business owners need to get familiar with. Not only are businesses required to register themselves under the GSTN, they must also reassess their business in accordance with certain new terminologies to determine how the GST impacts them. A few of the important GST definitions and the registration process are briefly specified here to help you get started.

GST terms to know 

Certain essential definitions have been mentioned under the Model GST Law, which was first released in June, 2016, and then modified and released again in November, 2016.

Business : Definition: Business refers to trade, commerce, manufacture, profession, vocation or any other similar activity, including transactions related or incidental thereto, irrespective of volume or frequency, as well as supply of goods/ services in connection with commencement or closure of business.

The definition is quite wide and seems to be borrowed from State VAT legislations. Some parts have been modified to include transactions in services.

Place of Business : Definition: (a) A place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods. (b) A place where a taxable person maintains his books of account. (c) A place where a taxable person is engaged in business through an agent.

Since GST is a destination-based indirect taxation system, the place of business is a critical factor in determining the business model and taxation dues of a business that is present in many places.

Time of Supply : Definition: The time of supply is the earlier of the following dates: (a) Date of issue of invoice by the supplier or the last day by which the supplier is required to issue invoice or (b) Date of receipt of payment.

The time of supply is important since it determines the point of taxation i.e. the point in time when goods / services have been deemed to be supplied or services have been deemed to be provided and hence SGST or IGST apply.

Goods : Definition: “Goods” refers to every kind of movable property other than money and securities, but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

While the term “movable property” has been mentioned, it has not been defined in the Model GST Law, and one needs to refer to the General Clauses Act 1897 for this. It does not include intangible property such as intellectual property rights (copyrights, trademarks). Also, an item needs to be movable for it to be classified as goods.

Services : Definition: “Services” means anything other than goods.

The GST Model Law clarifies that services include intangible property and actionable claims but does not include money. There are separate definitions for supply of software, works contracts and leasing transactions, even though they fall in the ambit of services. The inclusion of “actionable claim” may create confusion where financial and commercial transactions are involved.

Software includes the development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software, and is treated as a service.

As far as leasing transactions are concerned, a finance lease would be considered as supply of goods, and an operating lease would be considered as a service under the Model GST Law,

Works Contract : Definition: It is an agreement for carrying on building, construction, fabrication, erection, installation, fitting out, improvement, modification, repair, renovation or commissioning of any moveable or immovable property. Work Contract has been defined as a “Service”, simplifying its taxation procedure.

Supply : The GST has three new definitions related to “Supply”, i.e., Principal Supply, Composite Supply and Mixed Supply.

1. Principal Supply
Definition: It is the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary and does not constitute, for the recipient an aim in itself, but a means for better enjoyment of the principal supply.
It is generally the dominant supply in a bundle of supplies or a bundle of services. For example, in a mobile phone and the charger, the mobile phone will be the principal supply.

2. Composite Supply
Definition: a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

For example, goods packed with insurance and packing material is a composite supply, with the good being the principal supply. Here, there is a main supply and supporting supply, which normally go together in the course of business and enhance the enjoyment of the main supply.

3. Mixed Supply
Definition: Two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

Take the case of a corporate gift pack that consists of a tie, a wallet and a pen. These are bundled in a package supplied for a single price. None of the items is dependent on the other, nor necessary to be purchased together. This is a case of a mixed supply, where the individual items, which can also be sold separately, are sold together.

Aggregate Turnover : Definition: “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.

Reverse charge tax is a system where the recipient of the supply (goods and services), i.e. the client, is liable to pay the tax. Inward supplies are input supplies used as an input for manufacturing the goods or providing the service. Tax paid on input expenses can be adjusted against tax paid on output supplies, through input tax credit. This means that it cannot be treated as a part of the aggregate turnover.

Read more about GST at our GST blog for India.

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Successfull business tips in 2017: way to grow

Rationally encounter consequences ut that are extremely painful nor us again all is were seds anyone who loves desires.

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