A survey of HR and finance professionals across companies has found that a vast majority (81 per cent) of them don't consider the new optional income tax regime beneficial for their employees.
The government in Budget 2020-21 offered new tax slabs for taxpayers forgoing all existing deductions and exemptions.
The survey conducted by HR specialist Mercer across HR and finance professionals from 119 companies found that as much as 81 per cent of their employees feel that the new tax regime will not benefit them.
As much as 60 per cent respondents feel that those within the income bracket of Rs 5-10 lakh and Rs 10-25 lakh will be impacted by the new tax regime.
"A higher 80 per cent of responding employers think that the new tax regime will adversely affect the retirement savings behaviour of their employees," the survey released on Tuesday said.
They also fear the new tax regime will deter employees from taking up voluntary benefits from their employers, and this will force those drawing higher incomes to look for other investment options.
This would pose a two-fold challenge for companies, it said.
While organisations will have to look for innovative nudges to ensure that employees save voluntarily, it will also create a complex task at hand while negotiating for a better rate for these benefits with the vendors.
As much as 83 per cent respondents feel that less than 30 per cent of their employees will opt for the new tax regime.
The HR heads are further worried that communicating to employees about the new tax regime will be the biggest challenge they will face.
Besides, they feel it will be a challenge for their HR systems to handle dual tax regime, which also increases the compliance cost, the survey said.
The survey covered financial services, automotive manufacturing, IT/ITes, healthcare, chemical/life sciences, consulting, telecom, FMCG/ retail, travel/logistics, and education.
While 64 per cent of respondents expect a medium to high complexity challenge in introducing the new tax regime, only 13 per cent actually anticipate a change in salary structure, which means the employers may continue with same salary structures with various components irrespective of the tax regime chosen by the employees.
Also, more than 80 per cent employers think that the changes in section 17(2), under which employer contribution towards superannuation, national pension scheme and provident fund above Rs 7,50,000 will be taxable in the hands of employee, will create a negative impact on the amount of money they are investing towards these investment products.