Government Introduced the new scheme of Income tax recently. Those who care about their taxation issues must know the news.
Why new scheme now, when the old scheme itself looking beneficial?
And moreover, the government reduced the tax slab rates for the new scheme and introduced standard deduction too.
If we look at the overall view, any individual who is earning Rs 7,50,000 per annum is not going to pay a single rupee of tax.
So, by introducing this scheme government is going to lose the revenue right. First I also thought the same, but here comes the play of government.
Let’s see how the government is going to earn more revenue by reducing Direct tax.
In old scheme, we can claim deductions of various Expenses as well investments like Tax saving mutual funds, Insurance, NPS etc.
If we see India’s most of the income slab for youngsters is coming in between Rs 5,00,000 to 8,00,000 per annum. As in the old scheme, we need to invest some amount for getting the tax deduction. So, people get some motivation/ compulsion to invest or taking insurance. But if the tax deduction is not there, then people will think ‘why I need to invest if tax benefit is not there’, so they will not get encouragement to invest or save money.
Let’s Say I am a youngster having annual income of Rs 8,00,000 per annum, from this FY onwards I am not going to invest either in insurance or in mutual funds or NPS. So suddenly I have a pile of extra amount in my hand because of not investing.
Now what I will do with that ? do you think i will invest/save that extra money. Absolutely “no”. so, I will start spending that amount.
Here comes the part of GST
For every penny I spent I need to pay the GST, if you keenly absorb government slowly and steadily increasing the GST rates.
So, the point here is Government, by reducing the direct tax and taking out the tax benefits, making the people to spend that amount, in the end they are collecting GST (indirect tax).
Why is government reducing income tax and increasing the GST (Indirect tax). ?
Kindly go and see the number of people filing income tax returns in that how many of them actually paying the tax. In GST the condition is totally different, the whole 150 crore population need to pay the tax indirectly. And GST as a tax is inflation enabled, we need to pay more during inflation period, like right now we are facing the same. By doing this government will earn more revenue.
I hope I explained clearly.
As a smart people what we can do to escape from this play
1) Don’t spend on unwanted things
2) Develop an habit of savings and investments
3) Do budget for every month and spend wisely.
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