In an attempt to boost consumption, especially of the middle-class, Union Finance Minister Nirmala Sitharaman on Saturday proposed to slashed income tax rates for tax payers earning more than Rs 5 lakh up to Rs 15 lakh per annum in Budget 2020.
The new tax regime will be applicable for those ready to forego deductions and exemptions.
Here are the revised rates and the old rates:
Upto Rs 5 lakh: No tax
Between Rs 5 lakh-7.5 lakh: New tax rate of 10% vs existing 20%
Between Rs 7.5 lakh-10 lakh: New tax rate of 15% vs existing 20%
Between Rs 10 lakh-12 lakh: New tax rate of 20% vs existing 30%
Between Rs 12.5 lakh-Rs 15 lakh: New tax rate of 25% vs exisiting 30%
The new rates will be part of a new income tax regime. Under new income tax scheme, those earning Rs 15 lakh per anum and not availing any deductions will pay Rs 1.95 lakh tax versus Rs 2.73 lakh now.
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The minister, however, added that the revised tax rates are optional for the tax payers. A tax payer can continue paying tax under the older regime if she wishes to. "Rs 40,000 crore per annum will be revenue foregone from new income tax rates for individuals," said FM.
The personal income tax rate cut will increase consumption, which in 2019 has been one of the slowest in a decade. This could give rise to the demand for cars and homes, providing a much-needed fillip to companies in the FMCG and electronics sectors. More disposable income in the hands of individuals and more investible surplus in the hands of corporates could only come if the Centre reduces income tax, say experts.
Till now, the base tax rate for annual income between Rs 2.50 lakh to Rs 5 lakh is 5 per cent, which increases to 20 per cent for income above Rs 5 lakh up to Rs 10 lakh. Income above Rs 10 lakh is taxed at 30 per cent, plus there is an additional surcharge on individuals whose income is Rs 2 crore or more.
The additional surcharge announced in the Budget in last July led to the maximum tax rising to 42.744 per cent. There is a hope that the surcharge would be subsumed in the overall tax rate and the maximum rate may be lowered to 35 per cent. There is an expectation that the tax slabs will be recast too.
