The central government has announced a new alternative tax system without exemption and deduction in the budget 2020. In this new tax system, the number of income tax slabs has been increased to 7. However, the central government has kept this tax system optional. Find out whether you will benefit or not.
Nirmala Sitharaman, Union Finance Minister, in the Budget 2020 has given the option to continue in the existing tax scheme with the benefit of exemption and deduction or to adopt a new simplified tax regime with a lower rate of tax to the individual income taxpayers. Tax experts have said that the government’s new tax system will adversely affect the savings in the country.
NR Bhanumurthy, National Institute of Public Finance and Policy (NIPF) Professor said that due to declining demand in various sectors, the government cut direct tax rates by giving tax incentives. The country’s savings rate has been decreasing significantly for more than six years, According to various reports. In the year 2012, the savings rate was 36 percent but now it has come down to 30 percent.
Yogendra Alagh, the economist said, “This proposal will definitely affect the savings incentive.”
Rohit Azad, Assistant Professor of Jawaharlal Nehru University said that due to this proposal, the savings rate can be less but it is not a bad thing.
What is the new tax system
The Finance Ministry believes that under the new tax proposal, no tax has to be paid to those with an annual income of Rs 2.5 lakh. At the same time, the tax rate on income from 2.5 to 5 lakh rupees will be 5 percent as before. The Finance Ministry believes that at least 80 percent of taxpayers can adopt the new tax system.
New tax slabs and rates
- 10 percent for those with an annual income of five to 7.5 lakh.
- 15 percent on the income of 7.5 to 10 lakh
- 20 percent on the income of 10 lakh to 12.5 lakh
- 25 percent on the income of 12.5 lakh to 15 lakh
- And income above Rs 15 lakh will be taxed at the rate of 30 percent.
How can I save more tax?
These include NPS, insurance premiums, tax-saving mutual funds, medical insurance, and many others.
1. Use Rs 1.5 lakh limit under Section 80C
- Tax-Saver FDs
- PPF (Public Provident Fund)
- Equity Linked Savings Scheme – ELSS Funds
- NSC (National Saving Certificate):
- Life Insurance Premiums:
- National Pension System (NPS)
- Home Loan Repayment:
- Payment of tuition fees
- Employees Provident Fund (EPF)
- Senior Citizens Savings Scheme
- Sukanya Samriddhi Yojana
2) Get a deduction on your rent
3) Contribute to the National Pension System
4) Get a deduction on the interest on your home loan
5) Pay Health Insurance Premiums
6) Contribute to charity – charitable donations
7) Keep some money in your savings account