New Tax Regime
- By Sharmistha Dutta /Direct Tax /8 months ago /16
New Income tax Slabs – The new income tax slabs announced in the Budget 2020 is garnering a mixed reaction from public in general. On one hand, the rates have been reduced and on the other, many of the exemptions and deductions have been removed.
The taxpayers can opt for any one of the two options. Those opting for the new reduced tax regime will not have the option to enjoy the deductions that were available under the old regime.
Finance Minister Nirmala Sitharaman said at a press conference, "Those who are looking for a simplified reduced rate can opt for it. The government plans to reduce complications in compliance".
She also said, "We wanted to be sure that money is in the hands of the people rather than investing in schemes. We used the same principle as we did when the corporate tax rate was slashed. We wanted to simplify the tax slab,” Sitharaman said.
A brief comparison between the old and the new regimes is as follows:
|Old rate||Annual Income||New Rate|
|Nil||Up to Rs. 2.5 lakh||NIL|
|5%||Rs. 2.5 – 5 lakh||5%|
|20%||Rs. 5 – 7.5 lakh||10%|
|Rs. 7.5 – 10 lakh||15%|
|Rs. 10 – 12.5 lakh||20%|
|30%||Rs. 12.5 – 15 lakh||25%|
|Above Rs. 15 lakh||30%|
Some of the exemptions which have been scrapped and which were extremely popular mode of investments are:
- Interest on Home Loans
- Interest on Educational Loans
- Interest of Savings Bank Account
- Health Insurance Premiums
- House Rent Allowances
- Leave Travel Allowances
- Deductions under Section 80C – National Savings Certificates, Public Provident Fund, Life Insurance Premium, Fixed Deposits for 5 years in Bank and Post Office, ELSS Mutual Funds and Pension Fund.
And some of the income tax deductions which are still continuing under the new regime are:
- Money received for scholarship purposes
- Leave encashment on retirement
- Amount received for Voluntary Retirement Scheme (the maximum limit is Rs. 5 lakh)
- Cash received as awards from any events of public interest
- Money received from Employees’ Provident Fund
- Death–cum–retirement benefit
A taxpayer gets to choose between the two slabs. Various calculations show that salaried individuals are likely to benefit under the new scheme. The government conducted a study of about 5 crore taxpayers and found more than 60 percent favoring the new regime. When the corporate sector was given this option in September, most of them grabbed it mainly for the hassle free procedure. This change entails a revenue sacrifice of Rs. 40000 crore per annum. But, the government envisions a regime that does not have any exemptions at all.