- For individuals earning below ₹5 lakh, there is no change in the tax rate.
- A person whose income is ₹15 lakh earlier had to pay ₹2,73,000 in tax.
- After the revised rates, he will only have to pay ₹1,95,000.
Individuals earning below 2.5 lakh are exempt from paying tax. Income between 2.5 lakh and 5 lakh will be charged 5% tax. Income become 5 lakh to 7.5 lakh will be subject to 10% tax.
Income between 7.5 lakh and 10 lakh, that was earlier subject to a 20% rate, will also only have to pay a 10% tax. In addition, income between 10 lakh to 12.5 lakh will also see some relief from 30% earlier to 20% tax now.
Income between 12.5 lakh to 15 lakh which also subject to 30% earlier, will now only have to pay 25% tax. The final tax slab has been reduced from above ₹2 crore to above ₹15 lakh and it is subject to 30% tax rate.
However, the new tax slabs are only applicable to people who do not opt for exemptions under the tax regime. If individual tax payers choose to opt for exemptions, they will still be subject to the old tax regime.
Exemptions under the tax regime include deductions under 80C of PF, LIP, standard deduction, LTC, house rent allowance, minor income exemption, interest deduction on home loans among others.
Exemptions include ATC, insurance or any other tax saving investment schemes.
Although Sitharaman claims that this is an attempt to simplify the tax regime, one has to note that there now seven different tax rates rather than five, which some can argue makes the system more complex.
The old tax slabs lie between ₹5 lakh to ₹10 lakh and ₹10 lakh to ₹20 lakh. The new rates divide the former between ₹5 lakh to ₹7.5 lakh and ₹7.5 lakh to ₹10 lakh. The latter is now from between ₹10 lakh to ₹12.5 lakh and ₹12.5 lakh to ₹15 lakh.
While the tax rates provide relief for people near the bottom of the pyramid, the government has not introduced any increase in taxes for the upper tier.
For individuals earning below ₹5 lakh, there is no change in the tax rate.
See also:
New income tax slabs 2020>$4