FM Nirmala Explains Budget 2020's '2-tax System', Eyes Transition To 'no Exemption' Regime

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After presenting the Union Budget 2020-21, Finance Minister Nirmala Sitharaman, on Saturday explained the motivation behind the new 'optional' tax regime

Written By Suchitra Karthikeyan | Mumbai | Updated On:

After presenting the Union Budget 2020-21, Finance Minister Nirmala Sitharaman, on Saturday explained the motivation behind the new 'optional' tax regime, while talking to Republic Media Network Editor-in-Chief Arnab Goswami. Listing putting money in the taxpayers' hands and taxation reform as the agenda, Sitharaman said that companies were free to move to the new exemption-less tax regime or stay in the old tax regime. Sitharaman's budget speech was the longest spanning 160 minutes.

Budget 2020: FM Sitharaman's new 'optional' tax slab with massive cuts explained

'New tax system to put money in people's hands': FM

"I wanted to do things with this tax cut - put more money in the people's hands where the government has to invest in infrastructure projects and to give India - a simple and easy-to-comply tax regime. We want to start on taxation reforms even as we are in this kind of environment. For companies, I am not asking them to give away their exemptions - they can move on and then choose to move to this one," she said.

She added, "The idea behind (the tax cut) was to give a deep cut to those in the lower end of the income - 5 to 7.5 lakhs, 7.5 lakhs to 10 and so on. Over the decade, 120 exemptions have come into the Income Tax Law. So we looked at each one's relevance in today's India - I have removed some of them, rest continue. I am not speculating as to how long those wishing to continue in the old tax system can continue."

FM Nirmala Sitharaman gives the rationale behind her 'longest Budget speech'

Future of two-tax regime

One being asked why such a major tax reform now, in the face of a market slump, Sitharaman said that the two-tax regime was based on the principle to give tax exemptions to only that which is earned. Citing an example like  - leave encashment, she said that would stay. Revealing her plan, she added that the government wished to move to an exemption-less tax system as the taxes will so low. 

"A new system bereft of all exemptions is no fun. I want to start tax reform now and you are allowed to join me with no tax exemptions whenever you wish. Even in the new tax system, I am allowing some tax exemptions - will share the list which is not discretionary," she said.

She added, "It is based on the principle  - that which is part of their income and is taxed is unfair. For eg: Leave encashment - I can't take that under the taxation fold - hence it is part of a new system. I want to move gradually to a system with no exemptions as the taxation is so low. The taxpayers are always seeking professional help to figure the permutations and combinations which takes a lot of money away from them."

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New optional tax regime

In a massive 'optional' tax cut, Finance Minister Nirmala Sitharaman rolled out a new tax regime offering major cuts to individual taxpayers who forego reductions and exemptions. Listing that there are over 100 tax exemptions under the Income Tax Act, Sitharaman stated that an individual is allowed to continue in the old tax regime with the exemptions. Once these proposals are passed by the Parliament, these changes will become effective from the financial year 2020-21 i.e 1 April 2020.

  • Upto 5 lakhs - No tax
  • 5 lakh to 7.5 lakhs - 10%  down from 20%
  • 7.5 lakh - 10 lakhs - 15%  down from  20%
  • 10 lakh to - 12.5 lakhs - 20% down from  30%
  • 12.5 lakh -15 lakhs - 25% down from 30%
  • 15 lakhs above will continue at 30%

Union Budget 2019: Here are the income tax slabs, including the surcharge on the super rich

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