From Taxes relief to availing cheaper goods to generating jobs etc, people alwsys expect something bigger every year during union budget presentation. I have grown up watching my parents alwsys expect something from the annual budget presentation. At times when internet was not available, they used to watch TV or listen to raido broadcast for detailing all the benefits that the government of the nation could provide during their budget presentation. Yesterday was one of those days, when our Finance Minister Mrs Nirmala Sitharaman presented ger consecutive 8th budget for one of the largest democracy of the world. It's not easy to keep everyone happy, especially the middle class. But this time she brought big smile on many faces by introducing new Income tax slab for the individual's. But is there a catch behind such a huge relief?
One of the most awaited aspects of the budget is looking for tax relief for individuals and businesses. They alwsys interested to know how much they will pay to government, as per the tax rate.
Income tax is a tax charged on the annual income of an individual or business earned in a financial year
These rates are decided during the budget presentation. Taxpayers are expecting changes in tax slabs under the new tax regime, with hopes of an increase in exemption limits and standard deductions. This time, the finance minister introduce a new tax bracket for individuals. What is more apealing during this budget was that *there are "no tax" for income upto INR 12 Lakhs (USD 13840 approx). Here, are the new tax rate which will applicable for the new financial year for the Income Tax calculation : (All figures in INR)
- Income Upto 4,00,000 - 0%
- 400,000 - 800,000 - 5%
- 800,000 - 1200,000 - 10%
- 1200,000 - 1600,000 - 15%
- 1600,000 - 2000,000 - 20%
- 2000,000 - 2400,000 - 25%*
- Above 2400,000 - 30%
The government believes that the new structure will substantially reduce taxes for the middle class. Increasing the tax slab means more money for disposal at the end of individuals which will boost household savings, consumption, and investments. The government is targeting the tax payers to invest more with their saving which will get them additional source of their income through LTCG and STCG. These capital gains tax rates will be introduced next week, so there might be chances that there could be rise in those taxes.
Tax calculation above 12 Lakh
Yesterday, few of the people were confusing looking at the tax slab. They are questioning that if there is no income tax for income up to INR 1200,000, then why does the income tax slab show a tax of 5% for income from 4 lakh to 8 lakh and 10% for 8 lakh to 12 lakh etc.
The answer to this is question is required to work on calculation of tax once the income of the individual exceedd 12 Lakhs. In that case the tax will be calculated on slab basis rather than the flat weightage percentage as defined. Suppose a individuals incomes is 15 lakh, in that case, the tax will not be calculated as 15% on 15 lakh, which would have been 225,000/- or not even at the difference amount of 3 lakhs i.e 15L - 12L . Once the taxpayer income is beyond 12 Lakh, the tax will be calculated based on the slabs rate defined in the budget, with a lower rate of tax for the lower slabs. In this case the calculation will go like this :
For income upto 400,000 - 0% = 0
400,000 - 800,000 - 5% = 20,000
800,000 to 1200,000 - 10% = 40,000
1200,000 - 1600,000 - 15% = 45,000 (on 3 Lakh as income is 15 lakh)
As a result, the total tax will comes out to be 20k + 40k + 45k = 105,000/- which is far lessor in amount if compared to the direct rate charged on complete 15 Lakh @15%.
By introducing the tax rate, the government is aiming at making the middle class happy by increasing the amount in hand. This will lead to higher consumption and saving. Now I am more interested to know how the other differrnt taxes will be applied. Government surely be targeting the savings scheme and other investment option to attract the individual money and later those going to be charged in differrnt way. The LTCG And STCG and other government saving scheme rates will be interesting to watchout for.
In good faith - peace!