In the last full-fledged budget of the second Narendra Modi government presented by the finance minister Nirmala Sitharaman, major reliefs have been announced for the income taxpayers. The finance minister announced 5 major changed to the personal income tax regime under the direct tax proposals of the budget, which will reduce the income tax burden of the middle class taxpayers significantly.
Under the revised income tax system, the rebate limit for the new tax regime has been increased to ₹7 lakh from ₹5 lakh. This means, no income tax will be payable for those people who have income upto ₹7 lakh, provided they opt to file their income tax returns under the new income tax regime. However, the rebate limit remains ₹5 lakh for the taxpayers that choose to remain in the old tax regime.
Under the new income tax regime, the income tax rates are lower, but it does not have several deductions and exemptions which are available in the old tax regime. At present, both regimes are available for the taxpayers. The new tax regime means that taxpayers do not need to invest in tax-saving instruments to save tax.
The second change in the new income tax regime, the number of tax slabs has been reduced to five, with an increase in tax exemption limit ₹3 lakh. The new income tax slabs are:
- ₹ 0-3 Lakhs – Nil
- ₹ 3-6 Lakhs – 5%
- ₹ 6-9 Lakhs – 10%
- ₹ 9-12 Lakhs – 15%
- ₹ 12-15 Lakhs – 20%
- Above ₹ 15 Lakhs – 30%
Nirmala Sitharaman said that this will provide major relief to all taxpayers in the new regime. For example, an individual with an income of ₹9 lakh will need to pay income tax of ₹45,000, which is only 5% of the income. The tax on the same amount at the current rate is ₹60,000, therefore this is a reduction of 25% in the tax outgo.
Similarly, an individual with an income of ₹15 lakh will need to pay an income tax of ₹1.5 lakh, which is only 10% of the income, and 20% less than the current tax of 1,87,000.
The third change pertains to people with salaried and pension income. The standard deduction for salaried persons has been increased, and accordingly, people will salaried income of ₹15.50 lakh or more will be eligible for standard deduction of ₹52,500. The current standard deduction is ₹50,000.
In the fourth change, the highest income tax rate payable has been reduced by cutting the highest surcharge rate. The highest surcharge rate will be reduced to 25% from the current rate of 37%. This will result in the reduction of the maximum income tax rate in the country from 42.74% down to 39%.
In the fifth change in the income tax system, the limit of tax exemption on Leave Encashment has been increased to ₹25 lakh from the current limit of ₹3 lakh. This is applicable for leave encashment at the time of retirement for non-government salaried employees. The ₹3 lakh limit was set in the year 2002, when the highest monthly basic pay in the govt was just ₹30,000.
The finance minister also said that the new income tax regime is made the default tax regime. However, the old tax regime will remain to be available for the taxpayers.
