In a surprise move, Union Finance Minister Nirmala Sitharaman announced a new, optional, individual Income Tax regime in her Budget speech on Saturday. The tax rates have been reduced to a large extent under this new regime – however, those opting to file taxes under the new slabs will not be able to avail deductions. People can continue to file under old slabs if they want to claim deductions, the Finance Minister said.
According to the new tax regime, those earning upto Rs 5 lakh do not have to pay any income tax – which is the same as the existing tax regime. Those earning between Rs 5 lakh and Rs 7.5 lakh per annum will be taxed at 10%, against the existing 20%. Individuals earning between Rs 7.5 lakh and Rs 10 lakh per year will be taxed at 15%, against the existing 20%. Meanwhile those earning between Rs 10 lakh and Rs 12.5 lakh will be taxed at 20%, instead of the existing 30%. And those earning between Rs 12.5 lakh and Rs 15 lakh will be taxed at 25% against the current 30%.
The Finance Minister said that this move would make it easier for people to comply with the tax laws, and make it easier for them to file their returns by themselves, without the help of accountants. But the new regime will not allow individuals to claim deductions at all, the Finance Minister clarified.
However, if individuals want to claim deductions, they can continue to do so under the existing tax regime: No tax upto Rs 5 lakh, 20% between Rs 5 lakh and Rs 10 lakh, and 30% for those earning above Rs 10 lakh.
It was widely expected by tax experts that there would be tweaks to income tax slabs, as the country faces its worst economic slowdown in over a decade. Though there have been some benefits and sops that have been given in the last few years, income tax slabs have not seen any major changes since 2014, when Prime Minister Narendra Modi’s government presented its first Union budget.