Budget proposes new tax slabs, lower rates for those foregoing exemptions
The new income tax system is optional and a taxpayer can choose to remain in the existing regime with exemptions and deductions, Finance Minister Nirmala Sitharaman said while presenting her second Budget in the Lok Sabha.
It is to be noted that once the option to opt for new tax regime is exercised, it will remain valid for subsequent years.
Sitharaman further said that those earning up to Rs 5 lakh will not pay any tax either in the old regime or in the new regime.
"In order to provide significant relief to the individual taxpayers and to simplify the income-tax law, I propose to bring a new and simplified personal income tax regime wherein income tax rates will be significantly reduced for the individual taxpayers who forgo certain deductions and exemptions," Sitharaman in her Budget Speech.
Under the new tax proposal, people with an annual income of up to Rs 2.5 lakh will not have to pay any tax.
For income between Rs 2.5 lakh to 5 lakh, the tax rate (as earlier) is 5 per cent.
Further, those with an income of Rs 5 lakh to Rs 7.5 lakh will have to pay a reduced tax rate of 10 per cent; between Rs 7.5 lakh and Rs 10 lakh 15 per cent; between Rs 10 lakh and 12.5 lakh 20 per cent; between Rs 12.5 lakh and 15 lakh 25 per cent; and above Rs 15 lakh 30 per cent.
"The new tax regime shall be optional for the taxpayers. An individual who is currently availing more deductions and exemption under the Income Tax Act may choose to avail them and continue to pay tax in the old regime," the minister said.
The proposal would lead to a revenue sacrifice of Rs 40,000 crore per annum, the minister added.
Observing that there are about 100 tax exemptions and deductions, she said that 70 of them are being removed in the new simplified tax regime, while the remaining will be reviewed and examined in due course.
She further said that in the new tax regime, substantial tax benefit will accrue to a taxpayer depending upon exemptions and deductions claimed by him.
For example, a person earning Rs 15 lakh in a year and not availing any deductions etc will pay only Rs 1,95,000 as compared to Rs 2,73,000 in the old regime. Thus his tax burden shall be reduced by 78,000 in the new regime, the minister said.
Some of the deductions that have been proposed to be removed include, standard deduction, house rent allowance, under Article 80 of IT Act (which include insurance premium, contribution towards provident fund and certain pension funds). NKD CS MKJ