In a relief to taxpayers, Finance Minister Nirmala Sitharaman has proposed to cut income tax rates and change slabs to lower tax incidence for those earning upto Rs 15 lakh a year. The Minister has proposed a 10 percent tax on income between Rs 5 lakh and Rs 7.5 lakh from the current 20 percent now.
Under the proposed I-T slab, annual income upto Rs 2.5 lakh is exempt from tax. Those individuals earning between Rs 2.5 lakh and Rs 5 lakh will pay 5 percent tax. Income between Rs 5 and 7.5 lakh will be taxed at 10 percent, while those between Rs 7.5 and 10 lakh at 15 percent. Those earning between Rs 10 and 12.5 lakh will pay tax at the rate of 20 percent, while those between Rs 12.5 and Rs 15 lakh will pay at the rate of 25 percent. Income above Rs 15 lakh will be taxed at 30 percent.
Terming the new tax rates and slabs as simplified one, Nirmala Sitharaman said that the new reduced rates would apply for those who agree to forego all other exemptions available under the Income Tax Act.
Budget 2020 has offered taxpayers the option to choose between the existing income tax regime and a new regime with slashed income tax rates and new income tax slabs but no tax exemptions. The new tax regime offers lower tax rates and new tax slabs and simultaneously removes tax exemptions and will result in lower tax outgo for the taxpayer, according to the finance minister.
It is important to note that taxpayers can continue to pay taxes at current rates without shifting to the new regime. However, in order to avail the new tax rates, the individuals need to let go of exemptions.
This means individuals will now have two regimes like in the case of corporates. The new income tax rates will, however, not allow exemptions under Section 80C. Home loan exemption, insurance exemptions, the standard deduction will also not stay under the regime.
The new income tax rates will, however, not allow exemptions under Section 80C. Home loan exemption, insurance exemptions, the standard deduction will also not stay under the regime. Individuals opting for taxation under new rates will not be entitled to exemption/deductions including under Section 80C and 80D, LTC, housing rent allowance, the deduction for entertainment allowance, professional tax, and interest on self-occupied/vacant property.