81% Of Employers Feel The New Tax Regime Won’t Benefit Staff: Survey

A survey of HR and finance professionals of 119 companies across financial services, automotive manufacturing, IT/ITes, healthcare, chemical/life sciences, consulting, telecom, FMCG/ retail, travel/logistics, and education, by HR specialist Mercer, revealed that as high as 81 percent of them feel that their employees will not benefit from the new optional tax regime introduced for the financial year 2020-21.

On 1 February, Finance Minister Nirmala Sitharaman introduced a new but optional tax system that allows individuals to pay lesser overall tax if they forgo all existing deductions and exemptions available.

Of the surveyed population, 60 percent felt that the new tax regime will impact those in the income bracket of Rs 5-10 lakh and Rs 10-25 lakh.

A significant 80 percent of respondents feel that the new tax regime will "adversely" affect the retirement savings behaviour of their employees, the survey report released on Tuesday said.

There is also a fear that employees will not take up voluntary benefits from their employers and those with higher income will have to look at alternative options for investments. This could pose as a two-fold challenge. Employers will have to look at innovative ways to persuade employees to save voluntarily while negotiating for a better rate for these benefits with the vendors.

More than 80 percent employers think that the changes in section 17(2), under which employer contribution towards superannuation, national pension scheme and provident fund above Rs 7.5 lakh will be taxable in the hands of an employee, will create a negative impact on the amount of money they are investing towards these investment products.

Around 83 percent of the employers feel that less than 30 percent of the employees will opt for the new tax regime. There is also a concern among the HR and finance professionals that they will face hardships of communicating the changes in the tax regime to their employees as well as handle the dual tax regime, which could also increase compliance costs.

About 64 percent of the respondents expect a medium to high complexity challenges in the introduction of the new tax regime and only 13 percent anticipate a change in salary structure.