Income Tax Slabs In Budget 2020: Government Cuts Income Tax Rates For Those Willing To Give Up Exemptions
The Modi government offers an optional relief to income tax payers.
The Narendra Modi-led government offered an optional relief to individual taxpayers as it looks to bolster consumption and flagging economic growth.
Taxpayers will now be able to avail a lower income tax rate on various slabs by foregoing certain deductions and exemptions, Finance Minister Nirmala Sitharman announced in the Union Budget 2020. This comes after a rebate announced in the February 2019 pre-election budget, in which individuals with a net taxable income of less than Rs 5 lakh receive a rebate on the tax paid and, effectively, pay no tax.
The new regime will be optional and those who want to stick to claiming deductions will be allowed to do so.
New Personal Income Tax Structure Proposed
- For individuals earning between Rs 5-7.5 lakh per annum, the income tax rate has been reduced to 10 percent from 20 percent earlier.
- Individuals earning between Rs 7.5-10 lakh per annum, the income tax rate has been reduced to 15 percent from 20 percent earlier.
- Individuals earning between Rs 10-12.5 lakh per annum, the income tax rate has been reduced to 20 percent from 30 percent earlier.
- Individuals earning between Rs 12.5-15 lakh per annum, the income tax rate has been reduced to 25 percent from 30 percent earlier.
- Individuals earning above Rs 15 lakh per annum, will continue to pay 30 percent without any exemptions.
- People with income below Rs 5 lakh per annum will be exempt of tax in new regime. Under the existing structure, people with a taxable income between Rs 2.5 lakh and Rs 5 lakh received a rebate and effectively paid no tax.
The new rates will be subject to giving up deductions and exemptions.
Finance Minister also said the government has removed around 70 exemptions in the new income tax regime in order to simplify it and make sure that citizens can file their tax returns without the help of any advisers.
The personal tax changes will result in a loss of Rs 40,000 crore to the exchequer.
The new personal tax regime, coupled with the removal of dividend distribution tax, could lead to higher burden for some investors. “Dividends will be taxed in the hands of the shareholders at regular tax rate and in case of high net worth individuals at the maximum marginal rates of 43 percent,” said Girish Vanvari, founder of Transaction Square.
This may lead to a higher tax burden for many investors.Girish Vanvari, Founder, Transaction Square.
“The expectation was that the shareholders should be taxed at concessional rates. Further, no exemptions for individuals would mean discouragement for small savings, which are fixed deposits, insurance, housing interest, etc,” Vanvari said.