Budget 2020-21: New tax regime for taxpayers, lower rates for people foregoing exemptions

The new tax regime comprises of new slabs and slashed income tax rates for different slabs for an individual income of up to Rs. 15 lakh per annum if a taxpayer opts for foregoing exemptions and deductions.

   
income-tax-budget-2020

Intending to reduce the rates and simplify the structure, Finance Minister Nirmala Sitharaman on February 1 announced a new regime of personal income tax. The new tax regime comprises of new slabs and slashed income tax rates for different slabs for an individual income of up to Rs. 15 lakh per annum if a taxpayer opts for foregoing exemptions and deductions. The new tax regime offers lower tax rates and new tax slabs and simultaneously removes tax exemptions and will result in lower tax outgo for the taxpayer, according to the finance minister.

Under the new proposal, the tax structure will be as detailed in table below:

Taxable Income Slab (Rs.) Existing tax rates New tax rates
0-2.5 Lakh Exempt Exempt
2.5-5 Lakh 5% 5%
5-7.5 Lakh 20% 10%
7.5-10 Lakh 20% 15%
10-12.5 Lakh 30% 20%
12.5-15 Lakh 30% 25%
Above 15 Lakh 30% 30%

However, the new tax regime will be optional, and the taxpayers will be given a choice to either remain in the old regime with exemptions and deductions or opt for the new reduced tax rate without those exemptions.

As proposed in the new tax regime, 70 tax exemptions will be removed in the new system, but the tax benefits on retirement money, VRS, NPS and some of the other categories will continue for those in the new scheme. The proposal would lead to a revenue sacrifice of Rs 40,000 crore per annum.

Which tax regime -old or new–would be beneficial, i.e. result in lower tax payable for each individual is likely to depend on his/her income composition and investments are done. Each individual will have to do their income calculations to figure out which tax regime is more beneficial to them.

For instance, a person earning an income between 3.5 to 5 lakh will not witness any changes in the income tax slab as there are no changes in it.

However, if a person is earning Rs 5.5 lakh in a year and not availing any deductions will pay Rs 18,200 as per the new tax regime compared to an almost nil amount due to the tax exemptions such as policies and insurances as per the old tax regime. Therefore, in such a case, the old tax regime is beneficial.

Meanwhile, if a person is earning Rs 15 lakh in a year and not availing any deductions, etc. will pay only Rs 1,95,000 as per the new tax regime as compared to Rs 2,73,000 in the old tax regime.

Finance Minister also informed that the government has followed the same pattern as to when the corporate tax was reduced last September, and there was a scheme for those who were looking for a simplified structure while others could continue with exemptions. 

Additionally, in a bid to save the taxpayers from harassment, the centre has also proposed a mechanism to address the issue in the union budget 2020. FM in the budget speech introduced a Taxpayer Charter that will be instituted. 

She said that taxpayer charter would be instituted, a part of our statutes,

“We remain committed to taking measures to ensure citizens are free of tax harassment,”.

Further to boost up the startup sector, the tax burden on employees due to tax on Employee Stock Options (ESOPS) has been deferred by five years or till they leave the company or when they sell, whichever is earliest. 






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