Finance Minister Nirmala Sitharaman on Saturday presented the Union Budget for 2020-21, announcing a new regime of personal income tax.
"Under the new personal income tax regime, individual taxpayers to pay tax at a reduced rate of 10 per cent for income between Rs 5 lakh and 7.5 lakh against the current rate of 20 per cent," Sitharaman said while presenting the Budget.
"Those with income between Rs 7.5 lakh to 10 lakh to pay tax at 15% against the current 20%. Those with income between Rs 10 to 12.5 lakh to pay tax at 20%, down from 30 per cent," she added.
She further said that tax rates for income between Rs 12.5 lakh to 15 lakh will be 25%, under the new regime.
However, further perusal of Sitharaman's Budget 2020-2021 speech reveals a contradiction of sorts.
"In the interim Budget of 2019, our government exempted individuals having income up to 5 lakh from paying any income tax," the transcript of the speech says.
"Those earning up to 5 lakh shall not pay any tax either in the old regime or in the new regime," the speech reiterates in another paragraph.
However, according to the same transcript, for those earning between 2.5 lakh and 5 lakh, both the existing tax rate and the new tax rate is 5%.
At the time of publishing this article, there had been no clarification on whether this income bracket will be taxed. Further details are awaited.
Photo: indiabudget.gov.in/doc/Budget_Speech.pdf/ Screengrab
The lower income tax rates will apply only those for individuals foregoing exemptions under Section 80C, 80D, LTC, HRA among others.
At present, those earning upto Rs 2.5 lakh a year are exempted from income tax. The current income tax rate for those earning from Rs 2.5 lakh to Rs 5 lakh is 5 per cent but availing the deductions and exemptions, they can bring down their tax liability to nil.
The reduction in tax rates is set to boost sentiments and add to the purchasing power of the people. The measures are aimed at addressing the demand side concerns.
On account of lower income tax rates, the government would forego a total revenue of Rs 40,000 crore in a year.
Many experts had earlier said that most measures announced by the government to boost the economy were aimed at addressing the supply side concerns while there was a need to take measures to push consumption demand.
(With inputs from agencies)
