While presenting her second Budget in less than a year, Finance Minister Nirmala Sitharaman today introduced a brand new optional personal income tax system via budget 2020. While this move has been welcomed at large there are riders to it that will need analysing.
Budget 2020’s new tax structure includes a slashing income tax rates and revision of income tax slabs to reduce the tax burden on individuals.
The new taxation policy implemented through the budget will include the removal of 70 tax exemptions on one hand but on the other taxes across slabs has been reduced some drastically. For instance Incomes between Rs 5 lakh and Rs 7.5 lakh will be taxed at 10% down from current 20%. Incomes between Rs 10 lakh and Rs 12.5 lakh will attract a tax of 20% down from current 30%.
Sitaraman said this Budget will boost income and purchasing power of the people. This is possible as the new tax regime offers lower tax rates and new tax slabs will result in lower outgo of tax for the taxpayer.
Budget 2020 offers taxpayers the option to choose between the existing income tax regime and a new regime with slashed income tax rates and new income tax slabs but no tax exemptions.
As per our understanding, you can now file your income tax return as per the new regime or the old one
Which one will be more beneficial will depend on your income composition and ongoing investments are done. As per the announcements you will have to do your own calculations to figure out which tax regime is more beneficial it very individual specific. For example, if you are claiming a particular deduction of tax on investments now that rebate may not be available to you any longer
As dividends become taxable as per the new taxation policy your taxable income may increase as per the new tax regime.