Will Finance Minister Nirmala Sitharaman come up with an innovative idea of mixing the benefits of the old and new tax regimes? Will she give more concessions to Income taxpayers? Will she exempt annual income up to Rs 10 lakh from Income Tax? Will she add a new tax slab?
If reports are to be believed, Nirmala Sitharaman may keep the annual income up to Rs 10 lakh free of Income Tax. At present, income up to Rs 7 lakh is tax-free. If the standard deduction of Rs 75,000 is added, it comes to Rs 7,75,000. It may soon be Rs 10,75,000.
No Income Tax Up To Rs 10 Lakh?
Experts think the Finance Minister may also introduce a new tax slab at 25% for those earning between Rs 15 lakh and Rs 20 lakh. Those earning above Rs 25 lakh may be required to pay Income Tax at 30%. At present, all incomes above Rs 15 lakh have to be paid at the rate of 30%.
Analysts believe the government is ready to absorb the loss of revenue up to Rs 50,000 crore to Rs 1 lakh crore, if these provisions are announced.
The logic behind the tax relief is that the disposable income of Rs 50,000 crore to Rs 1 lakh crore may be used to stimulate consumption, thus boosting the overall GDP growth rate.
Will Nirmala Sitharaman Increase Standard Deduction?
If media reports are to be believed, Nirmala Sitharaman may also increase the standard deduction to give relief to all taxpayers. The idea of giving relief to about 9 crore taxpayers is also more attractive from a political or populist point of view.
Consulting firm Ernst and Young has expressed hope that the Finance Minister will also give some more exemptions to those earning between Rs 3 lakh and Rs 5 lakh annually.
The Institute of Chartered Accountants of India has said that the government may increase the standard deduction for those opting New Tax Regime.
The Old Tax Regime may be wrapped up slowly and gradually, so the government is not likely to pay too much attention or give many concessions under this regime.
One way of providing tax relief is to increase concessions under various exemption schemes, such as those under 80C or 80D.
The present Income Tax slab begins with 5% for income of Rs 2.5 lakh to 3 lakh per annum in the old tax regime and is completely exempt in the new tax regime.
In the old tax regime, the highest Income Tax slab of 30% was for people earning more than Rs 10 lakh per annum, while in the new tax regime, it is 15% for income between Rs 10 lakh and Rs 12 lakh, 20% for those earning Rs 12 lakh to Rs 15 lakh, and 30% for income above.
Experts believe most income taxpayers fall into the Rs 5 lakh to Rs lakh category and end up paying 20% in the old regime and 5% in the new regime.
