Dhruva was campus recruited by a USA based Software Giant for it’s branch operations at Bengaluru in 2019. Three years down the line, he draws a handsome CTC of Rs.24 Lacs. Following the footsteps of his grandfather, who is a retired Banker, Dhruva invests every rupee that he can, in Blue Chip Companies (including MNCs) listed in India to grow his wealth. Dhruva, being a true Gen Z, does not believe in investing for the sake of tax saving as he feels tax saving and investments have different objective. While filing his Income Tax Returns for the financial Year 2021-22, his grandfather, considering Dhruva’s investment style, suggested that the new tax regime may be beneficial for him. Dhruva missed the deadline of July 31, 2022 for filing his ITR. Will he benefit by opting the New Tax Regime?
Save money and money will save you ?
Traditionally people in general have been tuned and trained to “save more”. And hence the “discount” bug is very effective with “personal finance” decisions. But the trend is changing. Thanks to the start-up boom. We have many millennials who have reached the 25 to 40 lacs annual salary bucket. The take home this group enjoys is huge when compared to what was the take home for this age a decade or two back. With ESOPS and other innovative PERKS their employers offer, the traditional “80C bucket” of Rs.1.5 lacs seems ineffective for them.
New Tax Regime – What’s new?
Finance Budget 2020 introduced the New Tax Regime (Sec 115BAC) with an aim to cater to this group. The idea is to provide an option to the tax payer to choose between the old regime and new regime. One can claim various deductions and exemptions by setting aside money in specified investments and opt for the old tax regime which have higher slab rates. Alternatively, the new tax regime allows the taxpayer to get beneficial tax slab rates in exchange for not claiming the deductions and exemptions.
People like Dhruva can opt for the new tax regime, where they can have a better cashflow which enables them to invest in dynamic and productive investment schemes and products as against the “tax saving schemes” which have lock-in period. This would give them a better income and a faster growth in wealth.
Let’s take some numbers in Dhruva’s case to understand the benefits of new tax regime.
| Income Stream | Amount (Rs) |
| Salary | 24,00,000 |
| LTCG | 98,000 |
| STCG | (20,000) |
| Dividend | 15,,000 |
| SB Interest | 9,000 |
| Interest on Time Deposits | 5,000 |
| NPS | 45,000 |
Computation of statement of total income:
| Details | Old Tax Regime | New Tax Regime |
| Salary | 23,47,500 | 24,00,000 |
| Capital Gains | 78,000 | 78,000 |
| Other Sources | 29,000 | 29,000 |
| GTI | 24,54,500 | 25,07,000 |
| Less: | ||
| NPS | (45,000) | (45,000) |
| SB Int | (9,000) | |
| Total Income | 24,00,500 | 24,62,000 |
| Tax Liability | 5,29,620 | 4,70,808 |
Tax Savings if New Regime is opted : Rs. 58,812/-
Dhruva can save a sizeable number by opting for the new tax regime. However, there is a catch! In order to opt for the New Tax Regime, the return of income must be filed on or before the due date specified u/s 139 of the Income Tax Act.
Since Dhruva failed to file his ITR before the due date, he cannot opt for the New Tax Regime !
How can we help you?
Various clauses from the Income Tax Act may be simplified in online contents. But most of the time, it requires professional help in identifying suitable route for specific instances. Similar to nurturing and taking care of personal health, it is important to also keep a tab on one’s financial health. We at Chockalingam Unnamalai & Associates, can help you understand the pros and cons of various choices you make in the context of personal taxation. You can bank on us for a stress free tax filing and related compliances.
Call us at +91 73050 56628 or drop a mail to frontoffice@onesourcevault.com
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