The union budget was presented on the 1st of February 2020 by the finance minister Nirmala Sitharaman. According to several prominent economists, Sitharaman’s budget focuses on long-term growth economists. Another key highlight is that the government has introduced an optional income tax regime with lower tax rates.
The New Optional Tax Regime
One of the most significant changes that took place during this budget was a revision of the existing tax rates based on the salary slabs of employees. While there is no change in the existing Income-tax slab rates, a new tax regime has been proposed. Under these new slabs, individuals preceding exemptions and deductions will be taxed at reduced rates. This also means that HR managers will now have to look at their payroll tax compliance more carefully.
The exemptions and deductions that would need to be certain includes exemptions and deductions claimed widely by individuals. This includes HRA, LTA, standard deduction, deductions under Section 80C, etc. All of these must be carefully monitored by managers as an organization will maintain and monitor payroll tax compliance.
| Salary Slab | New Tax Rates | Old Tax Rates |
| ₹0 – ₹2,50,000 | Nil | Nil |
| ₹2,50,001 – ₹ 5,00,000 | 5% | 5% |
| ₹5,00,001 – ₹ 7,50,000 | Rupees 12500 + 10% of total income exceeding ₹5,00,000 | Rupees 12500 + 20% of total income exceeding ₹5,00,000 |
| ₹7,50,001 – ₹ 10,00,000 | Rupees 37500 + 15% of total income exceeding ₹7,50,000 | Rupees 62500 + 20% of total income exceeding ₹7,50,000 |
| ₹10,00,001 – ₹12,50,000 | Rupees 75000 + 20% of total income exceeding ₹10,00,000 | Rupees 112500 + 30% of total income exceeding ₹10,00,000 |
| ₹12,50,001 – ₹15,00,000 | Rupees 125000 + 25% of total income exceeding ₹12,50,000 | Rupees 187500 + 30% of total income exceeding ₹12,50,000 |
| Above ₹ 15,00,000 | Rupees 187500 + 30% of total income exceeding ₹15,00,000 | Rupees 262500 + 30% of total income exceeding ₹15,00,000 |
HR Payroll Services
Given that understanding taxation and adhering to payroll tax compliance is a difficult exercise, top management in organizations do have a lot of difficulty in adhering and complying with laws and statutes that change rapidly either due to the influence of the government or changes in the market.
Therefore, many organizations have begun to outsource their payroll processes to HR payroll services. These services handle all aspects of payroll from data analytics and record maintenance to payroll tax compliance. This helps managers focus on other areas within the organization that may need monitoring.
Given that legal compliance in HR and payroll is subject to change, HR payroll services will keep track of all changes required for an organization to stay compliant. More companies are beginning to adopt and shift to HR outsourcing services. The proof is in the fact that the HR payroll services and outsourcing industry was worth 85.6 billion USD, according to Statista.
Key Revisions
One of the major revisions made to the budget was that individual incomes would be exempted under the new tax regime. Some of them include:
- Gratuity received from employer, exempt up to 20 lakh INR.
- Employer’s contribution to the employee’s EPF/ NPS account provided annual contribution does not exceed 7.5 lakh INR per year.
- Interest received from the EPF up to 9.5%.
- Interest received up to 9.5% per annum from EPF.
- Payment received from the NPS account.
- Commutation of a pension if payment of gratuity is not honored.
Given that all these aspects directly affect employees, HR managers must always keep abreast of the happenings both within and outside the organization. They must accordingly devise strategies in which they must be extremely meticulous to stay compliant and vigilant of all lapses for the betterment of an organization.
