Old Regime :
0 - 5 Lakh : No tax
5 - 10 Lakh : 20%
10 Lakh & above : 30%
* exemptions & deductions can be claimed
New Regime :
0 - 5 Lakh : No tax
5 - 7.5 Lakh : 10%
7.5 - 10 Lakh : 15%
10 - 12.5 Lakh : 20%
12.5 - 15 Lakh : 25%
15 Lakh & above : 30%
* exemptions & deductions not claimed
Extract of Budget Speech Dt. 01.02.2020 by Honble Finance Minister, Govt. of India
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114. Personal Income Tax and simplification of taxation
- In the interim Budget of 2019, our government exempted individuals having income up to ` 5 Lakh from paying any income tax. Presently, an individual pays 20% on income between ` 5 Lakh to ` 10 Lakh and 30% on income above ` 10 Lakh. Further, currently the Income Tax Act is riddled with various exemptions and deductions which make compliance by the taxpayer and administration of the Income Tax Act by the tax authorities a burdensome process. It is almost impossible for a taxpayer to comply with the Income-tax law without taking help from professionals.
- In order to provide significant relief to the individual taxpayers and to simplify the Income-tax law, I propose to bring a new and simplified personal income tax regime wherein income tax rates will be significantly reduced for the individual taxpayers who forgo certain deductions and exemptions.
- Under the new regime, an individual shall be required to pay tax at the reduced rate of 10% for income between ` 5 Lakh to ` 7. 5 Lakh against the current rate of 20%.
- For income between ` 7.5 Lakh to ` 10 Lakh he will pay at the reduced rate of 15% against the current rate of 20 %.
- Similarly for the income between ` 10 Lakh to ` 12.5 Lakh the taxpayer will pay at the reduced rate of 20% against the current rate of 30 %.
- The income between ` 12.5 Lakh to ` 15 Lakh will be taxed at the reduced rate of 25% against the existing rate of 30 %. Incomes above ` 15 lakh will be continued to be taxed at the rate of 30 %.
- Those earning up to ` 5 lakhs shall not pay any tax either in the old regime or in the new regime.
- The proposed tax structure will provide significant relief to taxpayers and more so to those in the middle class.
- In the new tax regime, substantial tax benefit will accrue to a taxpayer depending upon exemptions and deductions claimed by him. For example, a person earning ` 15 lakh in a year and not availing any deductions etc. will pay only `, 1,95,000 as compared to `, 2,73,000 in the old regime. Thus his tax burden shall be reduced by 78,000 in the new regime. He would still be the gainer in the new regime even if he was taking deduction of ` 1.5 Lakh under various sections of Chapter- VI-A of the Income Tax Act under the old regime.
- The new tax regime shall be optional for the taxpayers. An individual who is currently availing more deductions & exemption under the Income Tax Act may choose to avail them and continue to pay tax in the old regime.
- The new personal income tax rates will entail estimated revenue forgone of ` 40,000 crore per year. We have also 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.
- In order to simplify income tax system, I have reviewed all the exemptions and deductions which got incorporated in the income tax legislation over the past several decades. It was surprising to know that currently more than one hundred exemptions and deductions of different nature are provided in the Income-tax Act. I have removed around 70 of them in the new simplified regime. We will review and rationalise the remaining exemptions and deductions in the coming years with a view to further simplifying the tax system and lowering the tax rate.
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