Finance Minister Nirmala Sitharaman on Saturday announced cuts in personal income tax (I-T), extended tax benefits for affordable housing and gave relief to companies on payment of dividend in the Union Budget for 2020-21, as the government looked to boost consumption to bring the economy out of the worst slowdown in 11 years.
The minister proposed raising customs duty on a variety of products, ranging from tableware and kitchenware, electrical appliances to footwear, furniture, stationery and toys, to give a level playing field to domestic companies and boost Make in India.
Offering an optional lower rate of income tax to individuals, Sitharaman in her Budget for 2020-21 proposed new tax slabs of 15 per cent and 25 per cent in addition to the existing 10 per cent, 20 per cent and 30 per cent. The new I-T slabs would be for individuals not availing certain specified deductions or exemptions.
Under the proposed I-T slab, annual income upto Rs 2.5 lakh is exempt from tax. Those individuals earning between Rs 2.5 lakh and Rs 5 lakh will pay 5 per cent tax. Income between Rs 5 and 7.5 lakh will be taxed at 10 per cent, while that between Rs 7.5 and 10 lakh will be taxed at 15 per cent.
Those earning between Rs 10 and 12.5 lakh will pay tax at the rate of 20 per cent, while those earning between Rs 12.5 and Rs 15 lakh will pay tax at the rate of 25 per cent. Income above Rs 15 lakh will be taxed at 30 per cent.
Individuals opting for taxation under new rates will not be entitled to exemption/deductions, including under Section 80C and 80D, LTC, housing rent allowance, deduction for entertainment allowance, professional tax, and interest on self-occupied/vacant property.
Currently, annual income upto Rs 2.5 lakh is exempt from I-T, while a 5 per cent tax is charged for income between Rs 2.5 and 5 lakh, 20 per cent for income between Rs 5 lakh and Rs 10 lakh and 30 per cent for those earning above Rs 10 lakh.
“The new tax regime shall be optional for tax payers,” she said.
“The proposed tax structure will provide significant relief to taxpayers and more so to those in the middle class,” Sitharaman added.
To boost growth, Sitharaman announced higher spending on the infrastructure, rural development and agriculture sectors.
The Finance Minister said the government is proposing a 16-point action plan to boost agriculture and farmers’ welfare.
Agricultural services need copious investments, she said, adding that the government has insured 6.11 crore farmers under the Pradhan Mantri Fasal Bima Yojna.
With her post 2019-20 Budget corporate tax cut drilling a Rs 1.45 lakh crore hole in government revenues, the minister hiked the fiscal deficit target for current fiscal to 3.8 per cent of GDP, from 3.3 per cent.
For 2020-21, she pegged the fiscal deficit at 3.5 per cent.