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Finance Minister Nirmala Sitharaman’s Budget has made several changes to the Income Tax. The changes are “meant primarily for the hardworking middle class”, she said. Here are the changes.
Rebate limit hiked: Currently, those with annual incomes of up to Rs 5 lakh do not pay any tax in the old and new regimes. Sitharaman proposed to increase the rebate limit to Rs 7 lakh in the new tax regime. Persons in the new tax regime with annual income up to Rs. 7 lakh will not pay any tax at all.
Slabs reduced: The tax structure has been changed with the number of slabs being reduced from 6 to 5. The tax exemption limit has been increased to Rs 3 lakh. The new tax rates will be as follows: Rs 0 to Rs 3 lakh: nil; Rs 3 lakh to Rs 6 lakh is 5 per cent; Rs 6 lakh to Rs 9 lakh is 10 per cent; Rs 9 lakh to Rs 15 lakh is 15 per cent; Rs 12 lakh to Rs 15 lakh is 20 per cent; while for those above Rs 15 lakh is 30 per cent. This will provide major relief to all tax payers in the new regime.
Benefit of standard deduction extended: For the salaried plus pensioners, including family pensioners, the benefit of standard deduction has been extended to the new tax regime. Each salaried person with an income of Rs. 15.5 lakh or more will stand to benefit by Rs. 52,500.
Reduction in maximum tax rate: The highest tax rate is 42.74 per cent, which is among the highest in the world. The Budget reduced the highest surcharge rate from 37 per cent to 25 per cent in the new tax regime. This will result in reduction of the maximum tax rate to 39 per cent.
Tax-exemption on leave catchment at retirement: The limit of Rs. 3 lakh for tax exemption on leave encashment on retirement of non-government, salaried employees was last fixed in 2002 when the highest basic pay in the government was only Rs. 30,000 per month. In line with the increase in government salaries, the Budget increased this limit to Rs 25 lakh.
New tax regime to be default: Sitharaman announced that the new Income Tax regime would henceforth be the default. However, citizens have the option to opt for benefits in the old tax regime.
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