Mumbai: All tax-free investment options will take a hit, if the new direct tax proposal is introduced and most (or all) taxpayers decide to shift to new regime. Analysts said the optionality clause for investment in such instruments, will be a huge disincentive.
Investment options like real estate may not be hit as much as other instruments like insurance, mutual funds etc. An analyst, who did not wish to be named, said, “This will hit the insurance sector which was driven due to these tax exemptions. The insurance will feel the pinch at least in the short-term. There will be drop in first-time premium collected by the companies.”
Another analyst, who is familiar with the sector, said, “While it looks like a short-term gain, but this will hurt the social fabric in the long-run. This is disincentivising savings and investments.”
Under the proposal, a person with an annual income of Rs 5-7.5 lakh will have to pay a lower tax rate of 10 per cent; Rs 7.5-10 lakh at 15 per cent; Rs 10-12.5 lakh at 20 per cent; Rs 12.5- 15 lakh at 25 per cent; and above Rs 15 lakh 30 per cent tax will be applied. The proposal will lead to a revenue loss of Rs 40,000 crore per annum (if the taxpayers opt for the new structure).
Naveen Kukreja, CEO and Co-founder, Paisabazaar.com, said, “The reduced rates in the new tax regime will increase the disposable income of these taxpayers, and can help in increasing consumer demand. Tax-payers should calculate their tax liability under both new and old regimes before starting their tax planning in the new financial year. However, the introduction of new tax regime may have a negative impact on the demand for various financial products like ELSS, life insurance, medical insurance, pension plans, etc."
Reacting to the budget, Prashant Tripathy, MD and CEO, Max Life Insurance, said, “Our initial analysis suggests that it is beneficial for tax payers to continue their investment in Life Insurance policies for claiming tax exemption under section 80C of Income Tax Act as it would be beneficial with less tax outflow in the year in which premiums are paid. Additionally, tax exemptions under section 10(10D) of Income Tax would continue against the amounts received from Life Insurance Companies.”
