The shift to India’s new tax regime has presented challenges for employees, especially those in higher income brackets who are seeing a widening gap between their Cost to Company (CTC) and their actual take-home pay. In the past, employees benefited from tax exemptions and deductions under the old regime, which helped mitigate their tax burden significantly. However, under the new system, exemptions are largely absent, meaning even significant jumps in CTC—such as moving from ₹60 lakh to ₹1 crore—do not translate into an equivalent increase in take-home pay. This new structure, with high taxes on income and variable components like performance bonuses, is causing employees to feel the sting of reduced take-home income despite apparently substantial salary increases.

In higher income brackets, the lack of exemptions exacerbates the tax burden, making CTC figures feel increasingly misleading for employees. For example, in the previous regime, deductions like house Rent Allowance (HRA), Leave Travel Allowance (LTA), and standard deductions on savings under Section 80C helped employees shield a portion of their income from high taxes. Now, these allowances are largely eliminated, leaving employees without these buffers. Variable pay structures further add to the disparity; large bonuses can push employees into higher tax brackets, making them liable for additional taxes without the option of claiming deductions.

As india moves towards phasing out the old tax regime entirely, employees are coming to terms with the “singular reality” of the new system. With limited options to reduce taxable income, they are facing a future where tax planning might play a much smaller role in personal financial management. For many, this shift underscores the importance of focusing on net income rather than CTC when negotiating job offers, as higher CTC figures under the new regime do not necessarily mean more disposable income. This change could reshape how employees view their salaries, making effective tax planning crucial for long-term financial security despite the limited flexibility in the current tax structure.
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SIBY JEYYA

25/10/2024 10:34 AM