In a proposal to simplify the personal income tax regime, Finance Minister Nirmala Sitharaman, in the Union Budget 2020 speech , said the income tax rates would be “significantly reduced” for those who forgo reliefs and exemptions and the new rates would be optional.
According to the proposal, those with an income between ₹5 lakh and ₹7.5 lakh, can now pay 10% instead of the present 20%, while those with an income between ₹7.5 lakh to ₹10 lakh, will see a reduced tax rate of 15% instead of 20%.
Similarly, for income between ₹10 lakh to ₹12.5 lakh, the tax is currently 30% that is now being brought down to 20%. For those earning between ₹12.5-15 lakh will be charged 25%. Those earning above ₹15 lakh will continue to pay 30%.
Accordingly, a person earning Rs 15 lakh per anum and not availing any deductions will pay ₹1.95 lakh tax in place of ₹2.73 lakh now. Those earning upto ₹5 lakh in a year will pay no tax.
The Finance Minister added that those who want to continue to avail the exemptions can continue to pay tax at the old. She added that ₹40,000 crore per annum will be revenue foregone from new income tax rates for individuals
“More than 100 exemptions of different nature are currently provided in the IT Act. I have removed around 70 of them in the new regime. We will review the rest of the exemptions in coming years,” she added.+
Opting for the lower tax rates would mean that you will have to give up on exemption such as leave travel concession, house rent allowance, standard deduction, deduction for entertainment allowance and employment/professional tax, interest under section 24 in respect of self-occupied or vacant property, any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However, deduction on employer contribution on account of employee in notified pension scheme and for new employment can be claimed.
The allowances that may remain are some transport allowances. It is also proposed to remove exemption in respect of free food and beverage through vouchers provided to the employee.
