Nirmala Sitharaman presented her second budget as Union Finance Minister on Saturday. The provisions in the Budget for Income Taxes were expected to create ripples as it was one area where reforms were expected the most. Along with Corporate Taxes, Income Tax reforms were believed to be crucial towards ensuring a revival of the economy.
In her second budget, Nirmala Sitharaman has proposed a new tax regime for the country. It is, however, optional for the taxpayers for the country. It was announced that in the new tax regime, those earning between Rs. 5 lakh to Rs. 7.5 lakh will pay income tax at the rate of 10%. Those earning between Rs. 7.50 and 10 lakhs will pay a 15% income tax. Those between Rs. 10 lakh and 12.50 lakh will pay a 20% income tax and the same for people earning between Rs. 12.50 and 15 lakh will be 25%. For those earning above Rs. 15 lakh in a year will be taxed at 30%. These rates are entirely optional and taxpayers willing to pay income tax at this rate will have to forego deductions and exemptions. Those who want to keep availing the deductions and exemptions can choose to pay tax at existing rates.
Nirmala Sitharaman announced that the government will forego a revenue of Rs. 40,000 crores due to the new income tax rates for individuals. She also said that 70 exemptions will be removed, with a view to further simplify the tax code. “A person earning Rs 15 lakh per anum and not availing any deductions will pay Rs 1.95 lakh tax in place of Rs 2.73 lakh now,” the Finance Minister said.
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In 2019, the income tax relief provided in the interim budget were the talk of the town and it is believed that it played a great part in alleviating the middle-class disenchantment with the Modi government head of the Lok Sabha Elections. Acting Finance Minister Piyush Goyal had announced a tax rebate for individual taxpayers with annual income up to Rs. 5 lakhs. It meant that individual taxpayers up to a gross income of ₹6.5 lakhs need not pay any income tax if they made investments in provident fund and prescribed equities. Around 3 crore middle-class taxpayers benefited from the tax exemption due to this measure.