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 тВ╣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
тВ╣2.5 lakh – тВ╣5 lakh – 5%
тВ╣5 lakh – тВ╣7.5 lakh – 10% (20% earlier)
тВ╣7.5 lakh – тВ╣10 lakh – 15% (20% earlier)
тВ╣10 lakh to тВ╣12.5 lakh – 20% (30% earlier)
тВ╣12.5 lakh – тВ╣15 lakh – 25% (30% earlier)
No change in tax rates above тВ╣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 тВ╣2.5 lakh, the rate of tax is nil. Where the total income is more than тВ╣2.5 lakh but less than тВ╣5 lakh, you have to pay 5% income tax by which the amount exceeds тВ╣2.5 lakh.┬а
For those earning between тВ╣5 lakh and тВ╣10 lakh, the tax outgo will be of тВ╣12,500 plus 20% of the amount by which the total income exceeds тВ╣5 lakh.
If you are earning more than тВ╣10 lakh, you have to pay tax of тВ╣1 lakh plus 30% of the total income exceeding тВ╣10 lakh.
However, those earning up to тВ╣5 lakh can claim a rebate of тВ╣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 тВ╣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 тВ╣50 lakh.
