Finance Minister Nirmala Sitharaman today slashed the personal income tax rate for individuals for the fiscal year 2020-21.
Under the new regime, taxpayers will pay 10%, 15%, 20% and 25% for incomes between Rs 5-7.5 lakh, Rs 7.5-10 lakh, Rs 10-12.5 lakh and Rs 12.5-15 lakh, respectively.
Also Read: Should you switch to the new tax slabs?
However, to avail of this scheme, which is optional, taxpayers will have to let go of exemptions.
Previously, taxpayers paid 20% for incomes between Rs 5-10 lakh and 30% for incomes between Rs 10-15 lakh.
Income below Rs 2.5 lakh will continue to remain exempt while income between Rs 2.5-5 lakh will continue to get a rebate.
FM Sitharaman suggested that someone earning Rs 15 lakh could benefit by as much as Rs 78,000 though the benefits that individual taxpayers will get from the announcement will depend on whether they take the benefit of exemptions.
Here's how to calculate income tax as per the new slabs announced in Budget 2020. (Or click here if you can't see the calculator below.)
"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," the FM said in the speech.
The new personal income tax rates will entail estimated revenue foregone of Rs 40,000 crore per year, she added.
She maintained that the government would continue to rationalise exemptions.
"It was surprising to know that currently more than one hundred exemptions and deductions of different nature are provided in the Income-tax Act. I have removed around 70 of them in the new simplified regime," she said. "We will review and rationalise the remaining exemptions and deductions in the coming years with a view to further simplifying the tax system and lowering the tax rate."
Also Read: Know your new tax rate as per Budget 2020 slabs
Rejigging of income tax slabs was suggested in the draft direct tax code readied by Akhilesh Ranjan, a former member of the Central Board of Direct Taxes (CBDT). The report has not been released yet.
The last major change in income tax was made in 2014 when the Modi government presented its first Union budget. Since then, there has not been any major change in the limits though some benefits and sops which were given in the years that followed.
The highest tax rate applicable to an individual was raised to 42.744 per cent in July 2019 when the full budget for FY 2019-20 was presented. The previous maximum tax rate was 35.88 per cent - this jump of nearly 7 per cent has hurt even the super-rich.
As per the government's statistics for the assessment year 2018-19, this income category accounts for 63 percent (3.49 crore out of 5.52 crore income tax returns filed) of the total individuals who file income tax returns. The remaining 37 per cent have ended up paying more tax by way of surcharge in case the total income exceeds Rs 50 lakh.