Finance Minister Nirmala Sitharaman rolled out new personal income tax regime wherein "income tax rates will be significantly reduced for individual taxpayers who forego certain deductions and exemptions". Under the new income tax regime, the earlier tax slab of Rs 5 lakh to Rs 10 lakh has been bifurcated into two separate slabs - Rs 5 lakh to Rs 7.5 lakh; and Rs 7.5 lakh to Rs 10 lakh.
Earlier, taxpayers had to pay income tax at 20 per cent for income in the range of Rs 5 lakh to Rs 10 lakh. As per the revised tax income tax regime, taxpayers earning between Rs 5 lakh to 7.5 lakh will be taxed on 10 per cent, half of what they were paying earlier. For the incomes between Rs 7.5 lakh and Rs 10 lakh, taxpayers will have to pay income tax at a rate of 15 per cent.
The new income tax regime, however, will not have any exemption or deductions and will be optional.
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"I have reviewed all the exemptions and deductions which got incorporated in the income taxes legislation over the several past decades. It was surprising to know that currently more than 100 exemptions and deductions of different nature are provided in the Income-tax Act. I have removed around 70 of them in the new simplified regime," the FM said.
The remaining exemptions and deductions will be reviewed in coming years in order to lower tax rates even further, FM Sitharaman further said.
The Dividend Distribution Tax, paid by companies on dividend paid to their stakeholders at 15 per cent, has also been revoked. This will lessen the tax burden on investors. "In order to increase the attractiveness of the India equity market and to provide relief to a large class of investors, I propose to remove the DDT and adopt the classical system of dividend distribution tax, under which companies will not be required to pay DDT. The dividend shall be taxed only in the hands of the recipients at their applicable rates," the Finance Minister said.