In Budget 2020, Finance Minister Nirmala Sitharaman announced a new tax regime, giving employees an option to choose between the old system or the new one that kicked in on April 1, 2020. In the budget announced on February 1, Sitharaman introduced lower tax rates in certain income slabs for those who forego exemptions. These include tax breaks on insurance premiums and home loan principal and interest payments.
Here’s a lowdown on all you need to know about the new system:
- Employees have an option of choosing between the new tax regime or the old one. Each employee/taxpayer may opt for any of the two, based on investments.
- Employees were required to inform their employer through a declaration if they want to opt for the new tax regime for deducting tax at source or TDS from salaries. Those who do not submit any declaration to the employer will continue to be charged under the old regime as earlier.
- As for the new slabs under the concessional tax regime, those earning Rs 2.5 lakh will have to pay no tax while people earning Rs 2.5-5 lakh will have to pay 5% tax.
- Individuals in the income bracket of Rs 7.5-10 lakh will pay 15 per cent tax. People earning over Rs 10-12.5 lakh will be taxed at 20% and those earning Rs 12.5-15 lakh will pay 25% taxes.
- People earning above Rs 15 lakh will pay 30% tax under the concessional tax regime.
- Once employees make their intention clear to opt for the concessional rates, it will remain the same for TDS purpose for the year.
- An employee can change the tax structure at the time of filing income tax and the amount of TDS will be adjusted accordingly.
- Thus, option at the time of filing of return of income under sub-section (1) of Section 139 of the Act could be different from the intimation made by such employee to the employer for that previous year.
