Finance Minister Nirmala Sitharaman on Saturday announced significant cuts for individual taxpayers who choose to forgo exemptions and deductions. However, those who wish to avail the deductions will pay taxes at the existing rates.
Under the optional new tax regime, those earning between Rs 5 lakh and Rs 7.5 lakh annually will now be taxed at 10%, down from the existing rate of 20%, the finance minister announced. Taxpayers in the Rs 7.5 lakh and Rs 10 lakh bracket will be charged at 15% instead of the current 20%, and those earning between Rs 10 lakh and Rs 12.5 lakh will have to pay income tax at 20% – reduced from the existing 30% rate.
Taxpayers earning Rs 12.5 lakh to Rs 15 lakh will be charged at 25% from the current tax rate of 30%. However, those earning beyond Rs 15 lakh will continue to be charged at Rs 30%.
“Those earning upto Rs 5 lakh shall not pay any tax either in the old regime or in the new regime,” Sitharaman said during her address in the Parliament. “New tax regime will be optional for taxpayers. Those who want to be in the old regime, can continue to be in it...in the old rates, in the old sets of exemptions and deductions. Those who wish to come into the new one are welcome to do so.”
The finance minister said that in a bid to simplify the tax system and lower tax rates, around 70 of over 100 income tax deductions and exemptions had been removed. The proposed tax structure will provide significant relief to taxpayers and especially for the middle class, Sitharaman said.
Last year, then Finance Minister Piyush Goyal had proposed to double the income tax exemption limit up to Rs 5 lakh. Goyal had said people with gross income of up to Rs 6.5 lakh will be kept out of the tax bracket if they make investments in provident funds and prescribed equities.