When the new tax regime was first introduced four years ago, it brought about significant changes for taxpayers like 72-year-old Sridhara, a retired PSU banker based in Bengaluru. Sridhara was delighted with the new tax regime as it not only reduced his tax liability but also eliminated the need to lock up his money in tax-saving instruments. Over the years, he has seen further improvements in the tax structure, with this year’s Budget offering him even more savings. The increase in the standard deduction and changes in the tax slab structure will cut his tax liability by more than Rs.15,000. Sridhara commends the government’s efforts to simplify personal income tax and bring more people under its ambit through the new tax regime, giving this year’s Budget a rating of nine out of 10.
However, not everyone shares Sridhara’s enthusiasm. Many investors, like Noida-based businessman Alok Hada, are disappointed with the Budget proposal to remove the indexation benefit available on real estate and gold. Indexation helps adjust the acquisition price of an asset based on inflation, thereby reducing the tax payable on capital gains. The removal of indexation means that investors planning to sell property or gold will now have to pay tax on the entire capital gain from the transaction, leading to higher tax outflows.
The real estate industry has expressed its discontent with the proposal, stating that real estate investments have been given an unfair deal compared to equities. Stamp duty on property transactions is significantly higher than the Securities Transaction Tax (STT) on stock market transactions, making real estate investments a lucrative source of revenue for state governments. The removal of indexation could potentially impact the viability of property investments for many individuals.
Despite the challenges posed by the Budget, there are ways for investors to mitigate capital gains tax liabilities. Investors in property can avoid tax by reinvesting capital gains in another house or capital gains bonds issued by NHAI or REC. Additionally, losses from property transactions can be set off against gains from other assets, such as gold, stocks, and mutual funds. Financial advisers suggest strategies to optimize tax liabilities and maximize returns within the new tax framework.
The Budget also introduces changes that benefit specific segments of taxpayers. For instance, parents sending money abroad for their children’s education faced high tax collected at source (TCS) rates, which have now been adjusted against salary TDS. This adjustment provides relief to taxpayers like Jaipur-based college professor Shefali Gautam, who previously had to wait several months to receive TCS refunds. The Budget’s provisions have addressed pain points for taxpayers in various scenarios, earning positive ratings from individuals like Shefali.
Overall, the Budget has elicited mixed reactions from taxpayers, with some benefiting from tax savings and simplifications while others facing challenges due to changes in tax structures. It is essential for taxpayers to understand the implications of the Budget proposals on their financial situations and explore strategies to optimize tax planning and investment decisions in the evolving tax landscape.