Finance Minister Nirmala Sitharaman presented the Union budget for the year 2020 today. While doing so, the FM also announced significant cuts for individual taxpayers choosing to forgo exemptions and deductions.
However, the new tax regime, as described by the FM, was optional and anybody who wished to avail the deductions could pay taxes at the existing rates.
Under the new optional regime, those with an annual income between Rs 5 lakh to Rs 7 lakh would be taxed at 10%, down from the existing 20%.
Similarly, taxpayers in the Rs 7.5 lakh to Rs 10 lakh bracket would be taxed at 15% as compared to the current 20%, while those earning Rs 10 lakh-Rs 12.5 lakh would now be paying I-T a 20%- down from the existing 30%.
Taxpayers with an annual income of Rs 12.5 lakh to Rs 15 lakh will now be charged at 25%, a cutdown from the existing 30%.
However, people earning beyond Rs 15 lakh per annum will continue to be charged a 30%.
According to the Economic Times, tax payable for each individual could depend on their income composition and investments.
So each individual has to do their own calculations in order to figure out which regime suits them the best.
Scroll reported Sitharaman speaking about the new tax regime during her address in the Parliament:
Those earning upto Rs 5 lakh shall not pay any tax either in the old regime or in the new regime… 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.
She also said that in an attempt to simplify the tax system and lower rates of taxation, about 70 of the 100 I-T deductions and exemptions had been removed.
Once these proposals are passed by the Parliament, these changes will become effective from the financial year 2020-21.