Revenue Secretary Ajay Bhushan Pandey on Sunday said the proposed income tax regime will have no losers and will benefit the lower and the lower-middle income segment the most, Hindustan Times reported.
Individual taxpayers can opt for new rates only if they give up almost all exemptions and deductions they enjoy under the current regime. The proposal was announced by Finance Minister Nirmala Sitharaman in the Union Budget for 2020-’21 on Saturday.
Under the optional new tax regime, those earning between Rs 5 lakh and Rs 7.5 lakh annually will now be taxed at 10%, down from the existing rate of 20%, the finance minister announced. Taxpayers in the Rs 7.5 lakh and Rs 10 lakh bracket will be charged at 15% instead of the current 20%, and those earning between Rs 10 lakh and Rs 12.5 lakh will have to pay income tax at 20% – reduced from the existing 30% rate.
Taxpayers earning Rs 12.5 lakh to Rs 15 lakh will be charged at 25% from the current tax rate of 30%. However, those earning beyond Rs 15 lakh will continue to be charged at Rs 30%.
Explaining the rationale behind conditional changes in income tax slabs and rates, Bhushan said the purpose was to offer an option of a simplified system to those not availing any exemptions.
“The actual position is that in this proposal not a single person will be a loser,” he said. “If anyone is the loser, he will be under the older scheme. There is absolutely no doubt about it...the basic purpose of this whole proposal is to offer an option of a simplified system, particularly to those who are not availing many exemptions. For example, a fresh salary earner – somebody who has just joined the workforce and started earning salaries – is not in a position to take the advantage of housing loan interest, because he has not yet decided where he will build the house or [if] he will buy a house.”
He added that the government expected around 50% of people in various categories, especially those in the lower bracket and the middle class taxpayers, to switch over to the new system.
Responding to the criticism that there are too many tax slabs, Bhushan told The Indian Express that a progressive and graded income-tax system is considered to be one of the best practices internationally. “In the US, there are six slabs of income, and in China, there are seven slabs of income,” he added. “We have studied practices of Malaysia, Thailand, Indonesia, Vietnam and several countries. If you have more income range, you need as many slabs as possible to prevent people from getting a shock when they move from one slab to another.”
The finance minister also defended the new tax regime on Sunday and said it will benefit some taxpayers in certain brackets, PTI reported. “The new scheme will eventually result in people paying more than in the old scheme, why would I come with such a system,” Sitharaman asked reporters in Delhi. “Because the income cuts are deeper in the new scheme, we believe a taxpayer from a particular income bracket will be much better off coming into the new system. And the new system, however much I repeatedly say has no exemptions, there are some exemptions that we have allowed in the new system also.”
Sitharaman said the government will issue more clarifications about the new system. On Sunday, the Ministry of Finance had clarified that non-resident Indians, or NRIs, will have to pay taxes on income earned only in India, and not on what they earn outside the country.
Also read:
What do the new income tax rates mean for individuals (and the government)?
Limited-time offer: Big stories, small price. Keep independent media alive. Become a Scroll member today!
Our journalism is for everyone. But you can get special privileges by buying an annual Scroll Membership. Sign up today!