Finance Minister Nirmala Sitharaman presented the Union Budget 2020 in the Lok Sabha on Saturday. This is the second time Sitharaman tabled the Budget after the Modi government returned to power.
Sitharaman classified the Budget 2020 into three themes Aspirational India, Economic Development and A Caring Society. She said that two aspects of this year’s Budget are to boost income and enhance the purchasing power of the citizens.
One of the most significant reforms announced in the longest Union Budget speech by FM Nirmala Sitharaman is on the personal tax front with new income tax slabs with lower rates. The introduction of the ‘New Simplified Tax Regime’ with five tax slabs, however, comes with a catch that the taxpayer will have to forego certain exemptions and deductions.
Income Tax Slab
Tax Rate (New Rate)
Tax Rate (Old Rate)
Rs 5-7.5 lakh
10%
20%
Rs 7.5-10 lakh
15%
20%
Rs 10-12.5 lakh
20%
30%
Rs 12.5-15 lakh
25%
30%
Above Rs 15 lakh
30%
30%
The finance minister informed that in order to simplify the tax system, after scrutinisation, around 70 of more than 100 income tax exemptions have been removed.
It is important to note that the new tax regime will be optional and the taxpayers will be given the option to either remain in the old regime with exemptions and deductions or opt for the new lower tax rate without those exemptions.
“In order to simplify the income tax system, I have reviewed all the exemptions and deductions which got incorporated in the income tax legislation over the past several decades. It was surprising to know that currently more than one hundred 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,” said FM Sitharaman.
The new income tax slabs will cost the government a revenue loss of ₹40,000 crores per annum, added Sitharaman in her speech.
Dividend Distribution Tax
In a much-expected move, the Finance Minister removed the Dividend Distribution Tax (DDT) and made it applicable only for the individual investors. She stated that the move was taken to increase ” the attractiveness of the Indian equity market.”
Currently, companies are required to pay DDT on the dividend paid to its shareholders at the rate of 15 per cent plus surcharge and cess, which is in addition to the tax payable by the company on its profits. The double taxation mechanism burdened companies with substantial cash outflow.
Also Read:Union Budget 2020: Know 10 Key Takeaways From FM Sitharaman’s Speech