No tax on income less that Rs5 lakh; lower rate option for slabs up to Rs15 lakh

Presenting the Union Budget 2020 in Parliament today, finance minister Nirmala Sitharaman announced big relief for taxpayers by exempting income tax on annual income below Rs5 lakh and reducing rates on various income slabs up to Rs15 lakh a year.

Sitharaman offered reduced income tax rates on earnings up to Rs15 lakh per year, but made it optional for taxpayers who will then have to let go of 70 exemptions for availing the lower rate of tax.

Sitharaman made it clear that the new slabs and reduced tax rate are applicable only to those taxpayers who are willing to forego exemptions and deductions. The new tax regime will be optional and taxpayers will be given the choice to either remain in the old regime with exemptions and deductions or opt for the new reduced tax rate without those exemptions.

As per the new income tax structure, those earning up to Rs5 lakh will not have to pay any tax.

This means lower tax rate for those in the Rs5 to 15 lakh bracket, provided they do not opt for exemptions. The new tax slabs and rates (with earlier rates in brackets) are as follows:

  • Income between Rs5 lakh-7.5 lakh – 10 % (20%)
  • income between Rs 7.5 lakh-10 lakh – 15% (20%)
  • Income between Rs 10-12.5 lakh – 20% (30%)
  • Income between Rs 12.5 -15 lakh – 25% (30%)
  • Income above Rs15 lakh – (30%)

Budget 2020-21 provides for e-commerce operators to deduct TDS on all payments to e-commerce participants at 1 per cent with PAN/Aadhaar, 5 per cent in non-PAN/Aadhaar.

Dividend distribution tax has been abolished. Companies will no longer be required to pay DDT. A total of Rs25,000 crore is revenue foregone due to DDT abolition, says FM. This will make India an attractive investment destination.

Sitharaman said the burden of tax on dividends tax has now been shifted to individuals instead of companies.

In her second Budget presentation, the finance minister said concessional tax rate of 15 per cent has been extended to power generation companies. The government plans 100 per cent tax concession to sovereign wealth funds on investment in infra projects, she added.

Sitharaman further said concessional withholding rate of 5 per cent on interest payment to non-residents has been extended up to 30 June 2022.

Sitharaman also proposed reduction in tax on cooperative societies to 22 per cent plus surcharge and cess, from 30 per cent at present.

Sitharaman also announced extending by one year the date of approval of affordable housing projects for availing tax holiday on profit earned by developers.

Further, the finance minister announced extension of additional Rs1.5 lakh tax benefit on interest paid on affordable housing loans to March 2021. Sitharaman further said the Income Tax Act will be amended to allow faceless appeals against tax orders on lines of faceless assessment.