New Delhi: In a landmark policy change that will give more choices to the taxpayers to choose either of the two taxation regimes according to their saving and expenditure behaviour, finance minister Nirmala Sitharaman Saturday announced further rationalization of personal income tax rates in this year’s budget.
Now individual taxpayers can continue with the existing tax regime which has several exemptions and deductions but will be required to pay higher taxes in comparison with those who will opt for new tax slabs introduced by Nirmala Sitharaman today.
Under the new tax slabs, income of an individual taxpayer has been divided into 8 slabs, beginning with the individuals having income of up to Rs 2.5 lakh in a year and then going to the taxpayers who have an annual income in excess of Rs 15 lakh in a year.
Nirmala Sitharaman announced that individual tax payers having income of up to Rs 2.5 lakh will be taxed at 0% while tax rate of 5% will be applicable for income between Rs 2.5 to 5 lakh.
However, an individual’s income of up to Rs 5 lakh will be completely tax free as the then finance minister Piyush Goyal amended section 87A of the Income Tax Act in February last year, increasing the rebate amount to Rs 12,500. He also raised the ceiling of income for availing the rebate from Rs 3 lakh to Rs 5 lakh, thus making income of up to Rs 5 lakh in a year completely tax free.
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Nirmala Sitharaman had maintained this provision to make an individual’s income of up to Rs 5 lakh in a year completely tax free. However, it is income above Rs 5 lakh where she had , she had introduced new tax slabs and income tax rates.
Under the new system, income between Rs 5 lakh to Rs 7.5 lakh will attract income tax at the rate 10%, income between Rs 7.5 lakh to Rs 10 lakh will be taxed at 15%.
The income between Rs 10 lakh to Rs 12.5 lakh will be taxed at 20% and the income between Rs 12.5 lakh to Rs 15 lakh will attract income tax at the rate of 25%. And a taxpayer’s income in excess of Rs 15 lakh will be taxed at 30%.
However, individual taxpayers availing the new tax slabs and tax rates will not be allowed to claim exemptions and deductions like deductions claimed on account of interest paid on home loan or principal of repayment.
“A taxpayer, who under the earlier regime, was required to pay Rs 2.73 lakh income tax will now be required to pay Rs 1.95 lakh tax,” said finance minister Nirmala Sitharaman in her budget speech.
“For him, it will entail a saving of Rs 78,000 in a year,” she explained.
( Article by Senior Journalist Krishnanand Tripathi )
