(PTI) Finance Minister Nirmala Sitharaman on Friday said the optional income tax regime with seven tax slabs was brought in by the government to ensure lower rates for those in the low income bracket.
Sitharaman said in the old tax regime, every tax assesses can claim about 7-10 exemptions and the income tax rates vary between 10, 20, and 30 per cent, depending on income threshold.
The minister said along with the old tax regime, the government has come up with a parallel system which has no exemptions, but with simpler and more favourable tax rates.
"The reason why I had to bring in seven slabs was to make simpler and lower rates for those who are in the lower income (bracket)," Sitharaman said.
She was speaking at an event to launch the book 'Reform Nation', authored by Observer Research Foundation Vice President Gautam Chikarmane.
The government in Budget 2020-21 introduced the optional income tax regime, under which individuals and Hindu Undivided Families (HUFs) were to be taxed at lower rates if they did not avail specified exemptions and deductions like house rent allowance (HRA), interest on home loan and investments made under Section 80C.
Under this, total income up to ₹2.5 lakh will be tax exempt.
A 5 per cent tax is levied on total income between ₹2.5 lakh and ₹5 lakh, 10 per cent on ₹5 lakh to ₹7.5 lakh, 15 per cent on ₹7.5 lakh to ₹10 lakh, 20 per cent on ₹10 lakh to ₹12.5 lakh, 25 per cent on ₹12.5 lakh to ₹15 lakh, and 30 per cent on above ₹15 lakh.
Under the old tax system too, income up to ₹2.5 lakh is exempt from personal income tax. Income between ₹2.5 lakh and ₹5 lakh attracts 5 per cent tax, while that between ₹5 lakh and ₹10 lakh is levied with 20 per cent tax. Income above ₹10 lakh is taxed at 30 per cent.
Sitharaman said the "gains of simplicity" of the old tax regime have not been reversed as the new exemption-free tax regime is just a parallel form of IT return filing system.
The Minister said to remove harassment, the tax department has also come out with faceless assessment of income tax returns.