- Date : 31/01/2022
- Read: 4 mins
One of the biggest changes in the way India pays its taxes is the introduction of the new regime. What are the other big changes in income tax over the last five years? Let's take a look as Budget 2022 nears.
What is the income tax slab?
In India, individuals have to pay income tax based on a slab system. This means different tax rates are determined for different ranges of income. It means income tax slab rates keep increasing with a rise in the income of the taxpayer. These income tax slabs are prone to change during every budget. Tax rules vary based on categories of taxpayers.
Classification of Solitary Taxpayer:
Individuals age less than 60 years, including residents and non-residents
Resident senior citizens aged between 60 and 80
Resident super senior citizens who are more than 80 years old
After Independence, the first income tax rate levied was as high as 97.75 per cent with 11 income tax slabs. India has come a long way since where 30 per cent is the highest rate with three slabs.
Let's take a look at what has changed in income tax over the last five years.
In Budget 2021, Finance Minister Nirmala Sitharaman announced no change in tax slabs for individual taxpayers. However, there were some changes in rules and regulations related to income tax. Senior citizens over the age of 75 do not have to file income tax if their only source of income is pension and interest and if the pension is deposited in the same bank where they are earning interest.
The interest on the employee's share of Employee Provident Fund (EPF) on or after April 2021 was made taxable if it exceeds ₹2.5 lakh. To calculate the tax, there will be two sections within the EPF account from FY 2021-22. Contributions made by an employee until March 31, 2021 will be non-taxable and from FY 2021-22, interest will be calculated on both these EPF accounts separately. According to the Central Board of Direct Taxes, these rules will be implemented from April 1, 2022 and tax on interest earned on excess contributions in FY 2021-22 will be payable by the employee and its declaration will have to be made in ITR filings next year. And for those not filing ITR, a higher TDS was introduced -- twice the existing rate or the rate of 5 per cent.
According to Budget 2020, an easy optional personal tax rule was introduced. From April 1, 2020, a salaried person has the option to choose between the old tax regime and the new one. The new tax regime comes with a reduced tax rate for those who are okay to forego 70 tax exemptions and deductions. These exemptions and deductions include those on house rent allowance, leave travel allowance, standard deduction, Section 80C and 80D deductions/
Income tax slabs for those opting for the new regime are as follows:
Finance Minister Nirmala Sitharaman did not change income tax slabs and rates in the budget from the announcements made in the interim budget by Piyush Goyal. Taxpayers whose gross earning did not surpass ₹5 lakh remained tax-free with the added benefit of a rebate of ₹12,500. It was declared that individuals whose income is in the range of ₹2 o ₹5 crore will pay 39 per cent as tax, and income above ₹5 crore will be levied with 42 per cent tax.
FY 2019-2020 (Interim Budget)
As per the Budget 2019, Interim Finance Minister Piyush Goyal increased the tax exemption limit from ₹2.5 lakh to ₹5 lakh. The limit for tax deduction at source for interest income earned by senior citizens was hiked from ₹10,000 to ₹40,000. Interest income includes interest earned from bank and post office deposits.
In Budget 2018, then Finance Minister Arun Jaitley made no changes in the personal income tax slab. However, he allowed a standard deduction of ₹40,000 for transport and miscellaneous medical expenditure. This meant the salaried class would get more take-home pay.
In his Budget 2017 announcement, Jaitley reduced chargeable rates, which made those in the lower bracket of income tax happy. Those having an annual income of ₹3 lakh would not be liable to pay any taxes. He reduced the rate of taxation for a person with revenue between ₹2.5 lakh to ₹5 lakh to 5 per cent. This rebate under the 87A section of Income Tax Act 1961 was also decreased to ₹2,500 for a taxpayer with income between ₹2.5 to ₹3.5 lakh.
For the middle-class, the most awaited part of the Budget is the announcement of any tax relief. It is not something that comes with every Budget, but many will be hoping for some cheer in 2022.