With the Union Budget 2020 announcements around the corner, expectations are riding high with a likely cut in Income Tax rates. The likely new tax proposal will have no tax on income up to Rs 5 lakhs. Between Rs 5,00,001 to Rs 10,00,000 the likely tax to be paid will be 10%, from Rs 10,00,001 to Rs 20,00,000 the tax is expected to be 20% while for an income of over Rs 20 lakhs the tax is expected to be at 30%.
In the last Union Budget, there was a full tax rebate to resident individuals with total income up to Rs 2.5 lakh. Between Rs 2,50,001 to Rs 5,00,000 the tax levied is 5% of the income, from Rs 5,00,001 to Rs 10,00,000 the tax to be paid 12,500 plus 20% of total income exceeding Rs 5,00,000. Whereas an individual with an income of more than Rs 10 lakh is levied with Rs 1,12,500 plus 30% of total income exceeding Rs 10,00,000.
With the tax rate of 5 to 20 per cent on the income level exceeding Rs 5 lakh, the take-home pay of the individual has been impacted severely. A reduction in income tax is will enhance the disposable income of the people and in turn encourage individual spending, positively impacting the middle-class sector.
Budget 2019 saw a significant increase in surcharge rates, increasing the effective tax rate for those at higher income levels from 35.88 per cent to 42.74 per cent, putting India on the trajectory of higher income tax rates world-wide whereas countries such as the US have reduced personal tax rates.