BUDGET: Govt removes 70 income tax exemptions

Most exemptions are removed

Government of India today announced that it has removed about 70 out of the 100 deductions and exemptions that tax-payers could avail of to reduce their tax liability, and will deal with the remaining 30 in the coming year.

The exact details of the exemptions and deductions that are being removed will be published soon.

To compensate, Finance Minister Nirmala Sitharaman announced a slashing of income tax rates by about 5%.

Nirmala Sitharam said the government has cut tax rates in most slabs by 5%, while exempting income up to Rs 5 lakh from any tax.

Earlier, people had to pay 10% tax for their income between Rs 3.5 lakh to Rs 5.0 lakh. This has been done away with.

Similarly, they had to pay 20% tax on their income between Rs 5 lakh to Rs 10. This has been split into two slabs, with 10% tax for Rs 5.0-7.5 lakh and 15% for the income between Rs 7.5-10.0 lakh.

Similar cuts have been made in the Rs 10-15 lakh bracket. Income from Rs 10 lakh to Rs 12.5 lakh will be taxed at 20% versus 25% earlier and the income from Rs 12.5 lakh to Rs 15.0 lakh will be taxed at 25%, versus 30% earlier.

All income above Rs 15 lakh per year will continue to be taxed at 30%.

While the new system may be beneficial for those who do not make many claims or deductions, the old system may be beneficial for those who have many claims and deductions.

In case someone wants to continue with claims and deductions, said Sitharaman, he or she can do so even in FY21. The new tax slabs, she said, are optional. It is likely that it will be made mandatory in coming years, and the multitude of exemptions will be removed.

Net net, said Sitharaman, the government expects to lose about Rs 40,000 cr because of the new slabs.