Income Tax rebate will continue on EPFO, NPS, Retirement Fund, Gratuity: Sitharaman (Photo Credit: ANI)
Finance Minister Nirmala Sitharaman on Saturday announced several measures to provide significant relief to the individual taxpayers and to simplify the Income-Tax law. In the new tax regime announced in the Union Budget 2020, substantial tax benefit will accrue to a taxpayer depending upon exemptions and deductions claimed by him. Under this regime, tax payers will continue to get tax rebate on Employees' Provident Fund Organisation (EPFO), National Pension Scheme (NPS), Retirement Fund, Gratuity, and others. The new tax regime shall be optional for taxpayers. An individual who is currently availing more deductions and exemption under the Income Tax Act may choose to avail them and continue to pay tax in the old regime.
The new personal income tax rates will entail estimated revenue foregone of Rs. 40,000 crore per year. Measures have been initiated to pre-fill the income tax return so that an individual who opts for the new regime would need no assistance from an expert to file his return and pay income tax.
The Finance Minister said she had reviewed all exemptions and deductions which got incorporated in the income tax legislation over the past several decades. Currently more than one hundred exemptions and deductions of different nature are provided in the Income Tax Act. She said that she has removed around 70 of them in the new simplified regime. She said that the remaining exemptions and deductions would also be reviewed and rationalized in the coming years, with a view to further simplifying the tax system and lowering the tax rate.
However, one will have to forgo several tax exemptions if he adopts for the new tax regime. Taxpayers won’t be entitled to concession on leave Travel Concession (LTC), House rent allowance, Deduction under Section 35AD or section 35CCC, 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).
Under the proposed I-T slab, annual income upto Rs 2.5 lakh is exempt from tax. Those individuals earning between Rs 2.5 lakh and Rs 5 lakh will pay 5 per cent tax. Income between Rs 5 and 7.5 lakh will be taxed at 10 per cent, while those between Rs 7.5 and 10 lakh at 15 per cent. Those earning between Rs 10 and 12.5 lakh will pay tax at the rate of 20 per cent, while those between Rs 12.5 and Rs 15 lakh will pay at the rate of 25 per cent. Income above Rs 15 lakh will be taxed at 30 per cent.
Individuals opting for taxation under new rates will not be entitled to exemption/deductions including under Section 80C and 80D, LTC, housing rent allowance, deduction for entertainment allowance, professional tax, and interest on self occupied/vacant property.
Currently, annual income upto Rs 2.5 lakh is exempt from I-T. While a 5 per cent tax is charged for income between Rs 2.5 and 5 lakh. 20 per cent for income between Rs 5 lakh and Rs 10 lakh and 30 per cent for those earning above Rs 10 lakh.