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If you earn ₹15 lakh, you save ₹15,600 with the new tax regime but you can’t claim tax benefits worth ₹73,000

<ul><li>The government has introduced new 'optional' tax slabs for individual taxpayers.</li><li>Instead of five different tax slabs, the new tax regime has seven tax slabs.</li><li>It also the lowers the tax for income between ₹12.5 lakh to ₹15 lakh from 30% to 25%.</li></ul>New tax slabs have been proposed by the Direct Tax Code panel to boost consumption and investment. The government hopes that increased purchasing power will push demand ahead of supply, incentivising firms to ramp up production which will reflect in GDP growth in the next financial year. The new tax slabs increase the minimum taxable limit from ₹2.5 lakh to ₹5 lakh. At the other end of the segment, anyone earning up to 15 lakh annually will be subject to 25% tax rate instead of 30%. However, the new tax slabs are only applicable to people who do not opt for exemptions under the tax regime -- including deductions under 80C of PF, LIP, standard deduction, LTC, house rent allowance, minor income exemption, interest deduction on home loans among others. Essentially, individual tax payers now have the choice to choose between the two tax regimes depending on their requirements. "The complex tax regime for taxpayers with the slabs rejig. With the optional new regime, taxpayers will have to evaluate what works better. Those committed to long term saving and investing via 80C may be discouraged and this may likely demotivate taxpayers from tax-saving linked investing," said Archit Gupta from Clear Tax. There will be no tax levied on annual income upto ₹5 lakh. However, if you cross that threshold tax will charged for income above ₹2.5 lakh. <table style="border-width: initial; border-style: none; width: 468pt; table-layout: fixed;"></colgroup></colgroup></colgroup></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Income </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Previous Tax Rate </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">New Tax Rate </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Up to ₹2.5 lakh </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Nil </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Nil </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹2.5 lakh to ₹5 lakh </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">5% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">5% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹5 lakh to ₹7.5 lakh </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">20% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">10% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹7.5 lakh to ₹10 lakh </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">20% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">15% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹10 lakh to ₹12.5 lakh </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">30% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">20% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹12.5 lakh to ₹15 lakh </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">30% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">25% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Above ₹15 lakh </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">30% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">30% </td></tr></tbody></table> The government’s move to stimulate the economy As companies look to increase output, job creation will go up or at least arrest job losses taking the pressure off of the country’s unemployment crisis. More jobs, would again, increase purchasing power resulting in a growth cycle. It could also increase the government’s burden On the flip side, experts expect lower tax rates to weigh on the exchequer. Tax revenue collection has often been criticized for being inefficient. However, the ultimate outcome depends on how the cycle of investment and economic growth plays out. Tax revenue could increase if the new tax cuts result in greater compliance over the next two to three years. This is also an attempt by the government to simplify the tax laws, which are known to be one of the most complicated in the world. See also: <a href="https://www.businessinsider.in/budget/news/budget-2020-allocates-6000-crore-for-bharatnet-to-connect-1-lakh-gram-panchayats/articleshow/73832949.cms">Budget 2020 allocates ₹6,000 crore for BharatNet to connect 1 lakh Gram Panchayats</a> <a href="https://www.businessinsider.in/budget/news/budget-2020-aayushman-bharat-allocation-to-eradicate-tuberculosis-by-2025-announced-by-nirmala-sitharaman/articleshow/73832769.cms">Budget 2020 aims to eradicate tuberculosis by 2025 using AI and ML to empower Aayushman Bharat</a> <a href="https://www.businessinsider.in/budget/news/budget-2020-nirmala-sitharaman-wants-nabard-to-geo-tag-cold-storage-facilities-to-make-them-more-efficient/articleshow/73832369.cms">Nirmala Sitharaman wants NABARD to geo-tag cold storage facilities to make them more efficient</a>

New income tax slabs 2020, income up to ₹5 lakh exempt

About 6 crore <keyword id="19948101" type="General" weightage="100" keywordseo="income-tax-returns" source="keywords">income tax returns</keyword> have been filed for income earned in 2023-24, of which 70 per cent were filed under the new <keyword id="22442211" type="General" weightage="20" keywordseo="simplified-tax-regime" source="keywords">simplified tax regime</keyword> which offers lower rate of tax, Revenue Secretary Sanjay Malhotra said on Tuesday. Addressing the post-budget session of PHD Chamber of Commerce and Industry, Malhotra said there were apprehensions as to whether people would shift to the simplified tax regime. "About 6 crore filed for last year and 70 per cent is under the new income tax regime. The whole move has been towards simplicity with the ultimate purpose being to reduce the <keyword id="20380188" type="General" weightage="20" keywordseo="compliance-burden" source="keywords">compliance burden</keyword>," Malhotra said. For the 2022-23 fiscal, 8.61 crore ITRs were filed. The idea behind comprehensive income tax review as announced in the <keyword id="19936553" type="General" weightage="20" keywordseo="budget" source="keywords">Budget</keyword> is to make the tax law simpler. "We will come up with a draft and then we will seek suggestions," Malhotra said. Currently, India has two <keyword id="20155151" type="General" weightage="20" keywordseo="personal-income-tax" source="keywords">personal income tax</keyword> regimes. In the old income tax regime, the <keyword id="20452955" type="General" weightage="20" keywordseo="tax-rates" source="keywords">tax rates</keyword> are relatively high but taxpayers can claim several exemptions and <keyword id="20385232" type="General" weightage="20" keywordseo="deductions" source="keywords">deductions</keyword>. However, in the <keyword id="19935168" type="General" weightage="20" keywordseo="new-tax-regime" source="keywords">new tax regime</keyword>, tax rates are lower but fewer deductions.

About 6 cr ITRs filed for FY24; 70% under new tax regime

The deadline to file your <keyword id="19948101" type="General" weightage="20" keywordseo="income-tax-returns" source="keywords">income tax returns</keyword> is approaching fast, and Sana is perplexed. All of 23, she's just started earning and working at an MNC, earning Rs 7,00,000 per annum, and can't figure out which <keyword id="20301439" type="General" weightage="20" keywordseo="tax-regime" source="keywords">tax regime</keyword> would work best for her. If you're having the same concerns and can't seem to wrap your head around the <keyword id="19935168" type="General" weightage="20" keywordseo="new-tax-regime" source="keywords">new tax regime</keyword>, here's a ready reckoner for you: When should I choose new tax regime? Think of choosing a tax regime as having to choose a friend in office. The <keyword id="8706677" type="General" weightage="20" keywordseo="old-tax-regime" source="Orion">old tax regime</keyword> is that aged, wise senior who has answers and hacks for everything. Want to get over with a boring project quickly? They will certainly have a trick up their sleeve! On the other hand, the new regime is far more chilled out, lax and is a no-nonsense person who wants nothing to do with long documents and longer meetings. The new regime was introduced in budget 2020 to simplify taxation, and offer lower rate of taxes as compared to the old regime. However, there's a catch. You cannot claim the 70+ exemptions and deductions that help bring down your taxable income and hence, reduce your tax liability. This option is exclusively available under the old tax regime. The main USP of this tax regime? Lower tax rates, and fuss of deductions! Consider this. If your income is within the range of Rs 5,00,000-Rs 12,00,000, and you have no investments, <keyword id="99916" type="General" weightage="20" keywordseo="house-rent-allowance" source="Orion">house rent allowance</keyword> (<keyword id="19944588" type="General" weightage="20" keywordseo="hra" source="keywords">HRA</keyword>), health/life insurance premiums or other such deductions to claim, the new tax regime would obviously make more sense to you, given the significant difference in tax liabilities (just 5% under new regime, and a whopping 20% in old regime for those in the Rs 5-6 lakh bracket!) <div type="image" title="Tax rates under old and new regime" msid="111685908" hostid="261"></div> So, if you're someone who hates complex tax calculations, wants minimal tax deductions, the new regime might just be for you! But remember, there are two conditions under which this new regime will be automatically chosen for calculating your taxes: <ul><li>If you keep procrastinating and don't file your <keyword id="6374875" type="General" weightage="20" keywordseo="ITR" source="Orion">ITR</keyword> till July 31, 2024</li><li>If you do not specifically opt for the old tax regime on your employer's HR portal</li></ul>Also, if you earn less than Rs 3,00,000 per annum, you are completely exempted from paying any tax at all. In the old regime, this basic limit is slightly lower at Rs 2,50,000. Also read: <a href="https://www.businessinsider.in/personal-finance/income-tax/all-you-need-to-know-about-the-new-tax-regime/articleshow/111578840.cms" data-type="tilCustomLink">All you need to know about the new tax regime</a> So, what do I get under this regime? Thanks to a rebate under Section 87A, if you earn up to Rs 7 lakh per annum, your tax liability (and Sana's as well) will effectively be zero. This is limited to Rs 5 lakh under the old regime. While a <keyword id="20429578" type="General" weightage="20" keywordseo="standard-deduction" source="keywords">standard deduction</keyword> of Rs 50,000 is available under both of them (so you can directly deduct Rs 50,000 from your total income before even beginning to calculate your tax liability), there are a lot more deductions and exemptions that this regime DOES NOT allow you to avail: <ul><li>Leave Travel Allowance (LTA)</li><li>House Rent Allowance (HRA) (Comes in handy if you're paying hefty rents in metros)</li><li>Interest on housing loan (on self-occupied property or vacant property)</li><li>Own contribution to NPS (If there's any)</li><li>Interest earned on savings bank A/Cs </li><li>Investments made in ELSS, PPF</li><li>Premiums paid towards life, health insurance policies</li></ul>As for the deductions that are allowed, that makes for a pretty small list: <ul><li>Transport allowances (only if you are specially abled)</li><li>Gifts of up to Rs 50,000</li><li>Employer’s contribution to your NPS account</li><li>Interest paid on home loan only on let-out property</li></ul>But that's the trade-off. You get to pay taxes at low rates, yes, but you also don't get to claim a whole lot other deductions. Notes CA Nitesh Buddhadev, "Which regime is beneficial for you depends upon the allowances and deduction available to you during a relevant financial year. So, if your total income from salary is Rs 10.5 lakh and if the aggregate of any of the deductions / allowances you can claim is less than Rs. 3.15 lakh, you should opt for the new tax regime. If you have not invested in multiple tax-savings scheme, the new regime will work better. So, don't make this decision in any haste. You can choose your tax regime only once in a financial year. And if your income from business or other professions, be even more careful, because this will then become a once in a lifetime choice for you (quite literally!). So, take a good hard look at your finances, and then decide what works best for you!

Confused about the new tax regime? Here's when you should opt for it

The Indian Government passed the <a href="http://www.businessinsider.in/searchresult.cms?query=income+tax+department&amp;sortorder=effectivedate">I-T amendment bill</a>, making the laws stricter but it is yet to see how strongly the laws will be enforced. 
 
According to <a href="http://www.businessinsider.in/searchresult.cms?query=demonetisation&amp;sortorder=effectivedate">new laws</a>, many unexplained expenditure, credits and deposits such as wealth inheritance from grandparents, wedding expenditure, etc will have to be explained. In case the person fails to give a ‘satisfactory’ reply to the taxmen on the source of funds received or give, he/she will have to cough up as much as 83% tax. 
 
"We have discussed the matter among ourselves. It's a strong provision in the (Income Tax) Act and the department would find it handy in mobilising tax from black money. But there are chances that it may be misused," a senior tax official in Mumbai which accounts for the highest direct tax collection told ET. 
 
READ ALSO: <a href="http://www.businessinsider.in/people-with-unaccounted-cashheres-how-the-i-t-department-is-watching-you/articleshow/56717177.cms">People with unaccounted cash: Here's how the I-T department is watching you </a> 
 
The relevant parts of the I-T Act are: Section 68 (dealing with unexplained cash credit, which is applicable to loans, gifts and share capital); section 69A (unexplained money, jewellery or valuable items); 69B (unexplained investment); and section 69C (unexplained expenditure.) Once section 115BBE is invoked, then the income (which is under question) cannot be set off against any other loss for the year or carried forward. 
 
The laws have gotten more teeth but can be misused too as the person only has to tell a right source of funds. Very few people maintain account books. 
 
“If one is able to establish unexplained deposits, loans, or investments, can the Assessing officer still not be satisfied? While every effort will be made by AO to determine identified credits as unexplained, assesses will try to prove otherwise by adequate evidences, by establishing the identity, capacity and genuineness,” Mitil Chokshi Senior Partners Chokshi and Chokshi told ET.

Tax laws have more teeth now but they can be misused too. Here’s how

New Delhi, Feb 3 () The new lower income tax rates offered in the Budget 2020-21 will leave more cash in the hands of those who do not wish to make compulsory investments to save tax, said Revenue Secretary Ajay Bhushan Pandey.
 In an interview with , he said the Budget gives an option to individuals to migrate to a new regime by foregoing their existing exemptions and deductions for a lower tax rate.
 "We are not saying which one is beneficial, which one is not beneficial. We have provided an option. We have not put restrictions on anyone. This proposal can only benefit somebody and not harm anybody," he said. "So, in this whole proposal, not a single person will be loser."
 He said taxpayers have an option to stay with the current regime of getting a standard deduction of Rs 50,000 and investing Rs 1.5 lakh in saving schemes and pay 5 per cent, 10 per cent or 30 per cent tax depending on income levels.
 Alternatively, they can migrate to the new regime and pay lower tax rates without having to invest in any instrument to claim exemption, he said.
 In the new regime, 5 per cent tax is levied on an annual income between Rs 2.5 lakh and Rs 5 per cent. The tax rate rises to 10 per cent, 15, per cent, 20 per cent and 25 per cent for every Rs 2.5 lakh addition. A 30 per cent tax is charged for income over Rs 15 lakh.
 "Because the proposal is that we will continue the old scheme and if you find the new scheme attractive, you come or else you don't come. Therefore, there is no scope of confusion or worry," he said.
 Pandey said the taxpayer will have to choose between old and the new regime at the time of filing return for the next financial year, sometime in July 2021.
 "When you file I-T return, there will be a choice. If you say choice 1 then the return form in the new system will open and most of your application will be pre-filled. Then, you make appropriate changes and file I-T (return). If you choose the old system, then only that form will open. It is easier to pre-fill the form under new tax structures," he said.
 He said data show that out of the 5.8 crore individuals who filed income tax returns in the financial year 2018-19, 90 per cent claimed tax deductions of less than Rs 2 lakh, including deductions under Section 80C of the Income Tax Act (for provident fund, PPF, life insurance premium), Section 80D (mediclaim insurance), Section 80CCD(1B) (additional deduction for National Pension Scheme), deduction for housing loan interest and standard deduction.
 "I am not saying it (new scheme) will benefit everyone. It might benefit 30-40 per cent people. But, even if it is benefiting 30 per cent people then also it is a big thing," he said. "We are giving option to those people who are unable to avail exemptions or deductions. Who are these people -- somebody who has just joined job market, someone who has not decided to buy a house, he does not know how much will be savings, he might be putting little money in PF (provident fund) and insurance. He may find that depending on his income, this new scheme is better."
 Similarly, for senior citizens living on a pension and who do not have to buy a house or put money in PF, the new regime would be beneficial, he said.
 The new tax regime is also beneficial for small businessmen and shopkeepers who do not get the benefit of LTC or HRA. 
 "It is not that our objective was to provide benefit to each and every section of the taxpayer. We have provided option and that should be fine," he said adding the new tax rates would lead to a Rs 40,000 crore dent in government revenues in the next financial year.
 Individuals having an annual salary income of over Rs 13 lakh and availing deductions of up to Rs 2 lakh will save on their tax outgo if they opt for the new tax regime proposed in the Budget, government sources said on Sunday.
 For those earning a salary of Rs 12 lakh and less and availing deductions of up to Rs 2 lakh, the old tax system will be beneficial as the tax outgo will be less compared to the proposed new structure.
 While individuals with an annual salary income of Rs 13 lakh and above will pay Rs 1.43 lakh tax under the proposed tax structure; in the old regime, they would have paid a tax of Rs 1.48 lakh, thereby saving Rs 5,200, a source said.
 On a salary of Rs 14 lakh a year, savings would be Rs 10,400; and for those with an income of Rs 15 lakh and above, savings would be Rs 15,600, provided the deductions claimed are up to Rs 2 lakh.
 In the case of non-salary earners, who do not get a standard deduction of Rs 50,000, the new tax structure is beneficial for those earning Rs 9.5 lakh annually and availing deductions up to Rs 1.5 lakh. They would save Rs 5,200 in their annual income tax outgoing. JD ANZ HRS

New tax structure gives option to save tax: Revenue Secy

<div class="KonaFilter image-container display-table"><div><div class="image on-image"></div></div></div><ul><li>The Republican tax plan would impose a new tax penalty on divorce.</li><li>The change would allow the government to collect more than $8 billion in new revenue over 10 years.</li><li>But it would make both parties to a divorce pay much more than they currently do.</li></ul> The Republican tax plan&#xa0;hasn't met the expectations of advocates for "family-friendly" tax reform. Its child credit <a href="http://www.businessinsider.com/middle-class-tax-break-in-gop-plan-child-credit-2017-11" target="_blank" rel="noopener noreferrer">provision is disappointingly small</a>, in the eyes of Sen. Marco Rubio, and it abolishes the adoption tax credit altogether.But there is one provision that could be construed as "pro-family": A tax penalty for divorce.The tax bill released Thursday would change the tax treatment of alimony. Currently, alimony&#xa0;is tax-deductible for the paying spouse and taxable to the receiving spouse. But if you get divorced after the plan is enacted, that would change:&#xa0;Alimony would be paid out of after-tax dollars, and would be tax-free to the recipient.This change would tend to increase the total amount of tax paid by divorced couples, since the ex-spouse who pays alimony is typically the one with the higher income who faces a higher tax bracket.The bill summary for the tax plan offers this argument:"The provision would eliminate what is effectively a 'divorce subsidy' under current law, in that a divorced couple can often achieve a better tax result for payments between them than a married couple can."That's true for some ex-couples, particularly those who have relatively equal incomes. But if you and your ex-spouse have relatively equal incomes, there's probably not a substantial alimony payment between the two of you anyway.For couples where one spouse makes much more than the other, the situation where you would expect substantial alimony, this change doesn't eliminate a divorce tax bonus. It creates a divorce tax penalty.All told, the change would lead to the federal government collecting an additional $8.3 billion in taxes from divorced couples over the next 10 years, according to the bill summary.<h2>Alice and Bill Smith get divorced and face the divorce tax penalty</h2>Consider a happily married couple, Alice and Bill. Bill makes $80,000 a year as an engineer; Alice, a struggling artist, makes $20,000.Alice and Bill&#xa0;have no children. Under the Republican plan, they would take the standard deduction of $24,000 and have a tax bill of $8,520.Their taxes are fairly modest in part because, under the Republican plan, married couples face a tax rate of 12% on the first $90,000 of taxable income, and only $76,000 of their income is taxable. They also get $600 in "family flexibility credits."Then Bill has an affair with Carol.&#xa0;Alice finds out and demands a divorce.Now Bill is a single man with an income of $80,000. His tax bill is now $10,850&#xa0;- more than the couple's combined tax bill when they were married, because for a single person, the 12% tax bracket only covers the first $45,000 of income. Now, a lot of&#xa0;Bill's income is taxed at 25%.Alice's tax bill is much more modest&#xa0;- just $660 on her income of $20,000. Bill is paying her $15,000 a year in alimony on top of that, but she doesn't pay any tax on it.All told, Alice and Bill are now paying $11,510 in federal income taxes, a 35% tax increase over when they were married&#xa0;- plus, they have to maintain two homes. Sad!<h2>Maintaining the existing alimony rules would save Alice and Bill a lot of money</h2>Imagine instead that Bill was able to pay Alice alimony on a pretax basis, the same way it's done today.&#xa0;In this scenario, we'll increase her alimony payment by 15% to $17,250, to reflect the fact that she'll be the one paying the taxes on it.In this scenario, Bill's income less alimony is $62,750, and his tax bill is $6,538. Alice's income including alimony is $37,250, and her tax bill is $2,730.That means their combined tax bill would be $9,268&#xa0;-&#xa0;only 8% more than when they were married, and nearly $2,000 less than under the Republican plan.Arguably, imposing such a substantial tax penalty on divorce could encourage people to stick it out and make their marriages work. But it could also financially trap people in unhappy marriages.This rule also would seem to violate the "ability to pay" principle of taxation.The whole reason the tax code offers higher tax bracket thresholds to married couples than single people is that a married couple's income has to support at least two people. If you're divorced, and one ex-spouse's income is being used to support the other ex-spouse, that's an income that's still supporting two people. But this plan would subject that income to tax brackets designed for a single person.This doesn't seem very nice.<div><div style="position:relative;width:auto;padding:0 0 47.5%;height:0;top:0;left:0;bottom:0;right:0;margin:0;border:0 none" data-break-on="414" data-lg-id="experience-59cbc3d6bffb3" data-lg-src="//view.ceros.com/business-insider/desktop-tax-bracket-comparison-1" data-lg-padding="47.5%" data-sm-id="experience-59cbe08f4fd6c" data-sm-src="//view.ceros.com/business-insider/desktop-tax-bracket-comparison-1-1" data-sm-padding="100%"> </div></div> <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/how-to-lose-weight-brain-body-effects-2017-10">Here's what losing weight does to your body and brain</a></h3> <div> </div> </div></hr>

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If you earn ₹15 lakh, you save ₹15,600 with the new tax regime but you can’t claim tax benefits worth ₹73,000

Prabhjote Gill

New income tax slabs 2020, income up to ₹5 lakh exempt

Prabhjote Gill

About 6 cr ITRs filed for FY24; 70% under new tax regime

PTI

Confused about the new tax regime? Here's when you should opt for it

Ira Alok Puranik

Tax laws have more teeth now but they can be misused too. Here’s how

BI India Bureau

New tax structure gives option to save tax: Revenue Secy

PTI

The Republican tax plan imposes a new divorce tax penalty

Josh Barro

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