Union Finance Minister Nirmala Sitharaman announced a significant cut in the tax rates for the salaried class in her Budget speech, provided they forgo existing exemptions. This also ushers in a new tax regime where the taxpayer has the option of taking new rates without exemptions or sticking to old rates with exemptions.
Sitharaman said this was to simplify the tax regime which was riddled with multiple exemptions and needed taxpayers to take the help of the professionals.
As per the new tax rates, income under Rs 2.5 per annum will remain untaxable as it was earlier. A tax of 5% will now be charged on income between Rs 2.5 to Rs 5 lakh. Those earning between Rs 5 – Rs 7.5 lakh per annum will now pay 10 per cent tax on their incomes which were earlier 20 per cent. The Finance Minister proposed a cut of 5 per cent from the existing 20 % for those earning between Rs 7.5 lakh to Rs 10 lakh per annum. They will now have to pay 15 per cent tax. Sitharaman announced that those earning between Rs 10 lakh to Rs 12.5 lakh per annum will now have to pay 20 per cent tax. Earlier it was 30 per cent.
The new tax rate applicable to those earning in the range of Rs 12.5 lakh per annum to Rs 15 lakh per annum will be liable to pay tax at the rate of 25 per cent. As per the new tax regime, 30 per cent tax will be charged on salaries above Rs 15 lakh per annum.
New income tax rates for assessment year 2021-22
#1. New income tax rate: 5% tax for income between Rs 2.5 and Rs 5 lakh
#2. New income tax rate: 10% tax for income between Rs 5 and Rs 7.5 lakh
#3. New income tax rate: 15% tax for income between 7.5 lakh and 10 lakh
#4. New income tax rate: 20% tax for income between 10 lakh and 12.5 lakh
#5. New income tax rate: 25% tax for income between 12.5 lakh and 15 lakh
#6. New income tax rate: 30% tax for income above 15 lakh
#7. No income tax for those with taxable income below Rs 2.5 lakh
The new rates will apply to only those individuals who forgo certain exemptions and deductions.
The finance minister said the proposal for the new tax regime will lead to a revenue sacrifice of Rs 40,000 crore per annum for the government. She also said that the government has initiated measures to prefill the income tax return so that an individual, who opts for the new regime, would need no assistance from an expert to file his return and pay income tax.
Sitharaman said there are at least 100 tax exemptions in the existing tax regime, which will be reduced by 70 under the new tax regime. The remaining will be reviewed and examined in due course, she said. The Budget also made changes to exemptions which allowed “individuals, who are actually carrying out substantial economic activities from India, manage their period of stay in India,” so as not to declare their global income in India.
Amid the economic slowdown, it was expected that the government would cut tax rates for the salaried class to increase consumer spending and boost the domestic consumption of goods.
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