The government launched the new tax regime with seven tax slabs in Budget 2020 to ensure lower rates for those in the low-income bracket, says Finance Minister Nirmala Sitharaman. The new tax regime is an optional scheme. It means taxpayers have two option. They can opt for any scheme from new or existing depending which best suits from the point of view of tax planning.
The finance minister further said that in the old tax regime, every tax assesses can claim about 7-10 exemptions and the income tax rates vary between 10, 20, and 30 per cent, depending on an income threshold.
She was speaking at an event to launch the book ‘Reform Nation’, authored by Observer Research Foundation Vice President Gautam Chikarmane.
The minister said along with the old tax regime, the government has come up with a parallel system that has no exemptions, but with simpler and more favourable tax rates.
“The reason why I had to bring in seven slabs was to make simpler and lower rates for those who are in the lower income (bracket),” Sitharaman said.
The government in Budget 2020-21 introduced the optional income tax regime, under which individuals and Hindu Undivided Families (HUFs) were to be taxed at lower rates if they did not avail specified exemptions and deductions like house rent allowance (HRA), interest on home loan and investments made under Section 80C.
Under this, total income up to Rs 2.5 lakh will be tax-exempt.
A 5 per cent tax is levied on total income between Rs 2.5 lakh and Rs 5 lakh, 10 per cent on Rs 5 lakh to Rs 7.5 lakh, 15 per cent on Rs 7.5 lakh to Rs 10 lakh, 20 per cent on Rs 10 lakh to Rs 12.5 lakh, 25 per cent on Rs 12.5 lakh to Rs 15 lakh, and 30 per cent on above Rs 15 lakh.
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Under the old tax system too, income up to Rs 2.5 lakh is exempt from personal income tax. Income between Rs 2.5 lakh and Rs 5 lakh attracts 5 per cent tax, while that between Rs 5 lakh and Rs 10 lakh is levied with 20 per cent tax. Income above Rs 10 lakh is taxed at 30 per cent.
Sitharaman said the “gains of simplicity” of the old tax regime have not been reversed as the new exemption-free tax regime is just a parallel form of IT return filing system.
The Minister said to remove harassment, the tax department has also come out with faceless assessment of income tax returns.
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