What are the Major Income Tax Cuts in Union Budget 2020?

Finance Minister, Nirmala Sitharaman has proposed a new income tax regime in the Union Budget 2020 on Saturday. The declaration reveals significant income tax cuts which serve as a ray of hope for the taxpayers. Budget 2020 enables taxpayers to either choose amid the existing income tax regime or new regime. Thus, it allows them to avail the current income tax deductions/exemptions or go for the new tax regime with slashed tax rates and slabs but no tax deductions/ exemptions. Let’s get an insight of the entire story and apprehend the major income tax reliefs.

Income Tax Cuts in Union Budget 2020

Nirmala Sitharaman [1] has changed the income tax rates and slabs for the foregoing deductions and exemptions. The budget facilitates the middle-class to save on taxes and also discards dividend distribution tax (DDT) which ultimately helps to uplift the Indian economy. The new tax regime shall be beneficial as the lower tax payable for every individual shall depend upon his or her income composition and investments.

Here are the highlights of the income tax cuts in Union Budget 2020:

Income Class Income Tax Rates (without deductions) Current Tax Rates (with deductions) INR 5 Lakh Nil 5% INR 5-7.5 Lakh 10% 20% INR 7.5- 10 Lakh 15% 20% INR 10-12.5 Lakh 20% 30% INR 12.5-15 Lakh 25% 30% Income above INR 15 Lakh 30% 30%

There has been a tremendous change in the income tax rates as compared to the previous budget slabs. Some noteworthy income tax cuts include the income between INR 5 lakh to 7.5 lakh shall be taxed at 10% down from the last budget 20%. Likewise, the income class of INR 7.5 lakh to 10 lakh will bear a tax at 15% down from the current 20%. Also, the income tax rates for INR 10 lakh to 12.5 lakh will be 20% down from the earlier tax rate of 30%. The people who are earning in between the scale of INR 12.5 lakh to 15 lakh will be taxed at 25% down from current rates of 30%. All the companies or individuals with annual earnings of more than Rs 15 lakh will continue to be taxed at 30% in a financial year.

Impact of New Income Tax Regime on the Taxpayers

The new income tax regime reduces the tax rate payable by a salaried employee; while it accompanies with some vital ‘conditions apply’. Finance Minister, Sitharaman has proclaimed that the current tax regime with its higher income tax slabs will continue to exist and the new income tax regime shall be optional.

The old tax regime includes all the exemptions and rebates which a taxpayer deploys to reduce the overall tax paid. Whereas, the new tax regime under Union Budget 2020 does not includes about 70 exemptions. It simply means that if you adopt the new income tax regime, then you can avail massive income tax cuts but cannot claim around 70 of the exemptions which were available in the previous regime.

Since income tax is a valid proof of your legal income, it is essential to file an income tax return every financial year. In case you need any professional assistance while filing income tax return, contact Swarit Advisors.

Also, Read: Union Budget 2020-21: Key Highlights