Union finance minister Nirmala Sitharaman announced in her Union Budget speech on Wednesday (February 1) that she proposes to increase the income tax rebate limit from Rs 5 lakh to Rs 7 lakh in the new tax regime. Addressing the Lok Sabha in Parliament, Sitharaman said, “I have five major announcements to make concerning personal income tax. These primarily benefit the hard-working middle class.”
Sitharaman said that currently, those with income of Rs 5 lakh do not pay any income tax in both old and new regimes. “I propose to increase the rebate limit to Rs 7 lakhs in the new tax regime,” she said, adding that people with income up to Rs 7 lakh will not have to pay any tax at all.
In the second proposal, Sitharaman said that she proposes to change the tax structure in the new personal income tax regime by reducing the number of slabs to five and increasing the tax exemption limit to three.
“For Personal Income Tax, the new tax rates are 0 to Rs 3 lakhs – nil, Rs 3 lakh to 6 lakh – 5 per cent, Rs 6 lakh to 9 lakh – 10 per cent, Rs 9 lakh to 12 lakh – 15 per cent, Rs 12 lakh to 15 lakh – 20 per cent and above Rs 15 lakh – 30 per cent,” she said.
Explaining the above point, the FM said that an individual with an annual income of Rs 9 lakh will be required to pay only Rs 45,000. This would be only five per cent of the individual’s income.
“My third proposal is for the salaried class and the pensioners, including family pensioners, for whom I propose to extend the benefit of the standard deduction to the new tax regime. Each salaried person with an income of Rs 15.5 lakh or more will thus standby to benefit by Rs 52,000,” Sitharaman told Parliament.
The finance minister’s fourth announcement was regarding the highest tax rate in India which is at 42.74 per cent, which is among the highest in the world. “I propose to reduce the highest surcharge from 37% to 25 % in the new tax regime. This would result in the reduction of the maximum rate to 39 per cent.”
The fifth and last announcement was regarding the limit for tax exemption on leave encashment on the retirement of non-government salaried employees. Sitharaman told Parliament that the limit of Rs 3 lakh for tax exemption for such employees was last fixed in 2002 when the highest basic pay in the government was Rs 30,000 per month. “In line with the increase in government salaries, I am proposing to increase this limit to Rs 25 lakh.”
“We are also making the new income tax regime the default tax regime, however, citizens will continue to have the option to avail the benefits of the old tax regime,” Sitharaman pointed out. Apart from the above, Sitharaman also said she was making some other changes as given in the Annexure.
She said that as per a result of these above proposals, the revenue of about Rs 38,000 crore – Rs 37,000 crore in direct taxes and Rs 1,000 crore in indirect taxes-would be forgone while revenue of about Rs 3,000 crore will be additionally mobilised. The total revenue forgone is about Rs 35,000 crore annually.
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