Finance Minister Nirmala Sitharaman today proposed new income tax slabs and lower rates. These income tax rates are optional and are available to those who are willing to forego some exemptions and some deductions. The new income tax rates will be significantly reduced for those who forego reliefs, exemptions, the finance minister said.
The government will forego ₹40,000 crore per annum in revenue from new income tax rates for individuals, she said.
New income tax slabs
0 – 2.5 lakh – exempted
₹2.5 lakh – ₹5 lakh – 5%
₹5 lakh – ₹7.5 lakh – 10% (20% earlier)
₹7.5 lakh – ₹10 lakh – 15% (20% earlier)
₹10 lakh to ₹12.5 lakh – 20% (30% earlier)
₹12.5 lakh – ₹15 lakh – 25% (30% earlier)
No change in tax rates above ₹15 lakh
These new income tax related proposals will come into effect from the assessment year 2021-22 or financial year 2020-21. Assessment year is the year that immediately follows the financial year.
Under the current regime, if the total income is not more than ₹2.5 lakh, the rate of tax is nil. Where the total income is more than ₹2.5 lakh but less than ₹5 lakh, you have to pay 5% income tax by which the amount exceeds ₹2.5 lakh.
For those earning between ₹5 lakh and ₹10 lakh, the tax outgo will be of ₹12,500 plus 20% of the amount by which the total income exceeds ₹5 lakh.
If you are earning more than ₹10 lakh, you have to pay tax of ₹1 lakh plus 30% of the total income exceeding ₹10 lakh.
However, those earning up to ₹5 lakh can claim a rebate of ₹12,500 under Section 87A of the Income Tax Act. This will effectively bring down the tax outgo to zero. However, if your taxable income crosses ₹5 lakh, you are not eligible for the rebate and will have to pay the full amount of tax as per the slab.
A health and education cess of 4% will be added to the total tax outgo besides a surcharge if your income crosses ₹50 lakh.