Government's Revised Minimum Income Tax Threshold Comes into Effect as New FY 2083/84 Begins

The government has revised the minimum threshold for income tax, with the new provisions coming into effect from today following the commencement of the fiscal year 2083/84. The revised tax thresholds and rates will apply to income earned during the new fiscal year in accordance with the provisions introduced through the annual budget. Under the provision, the government has raised the minimum taxable income limit for individuals to Rs 10 lakh and reduced the maximum personal income tax rate by 10 percentage points.

According to the Ministry of Finance, the minimum income threshold was raised to reduce the tax burden on individuals. As per the Economic Act 2083, individuals with annual taxable employment income of up to Rs 10 lakh will now pay only 1 percent tax. However, this provision will not apply to income earned by natural persons registered as sole proprietorship firms, in respect of retirement income contributed to a retirement fund or a contribution-based social security fund.

For taxable income above Rs. 10 lakh and up to Rs. 15 lakh, taxpayers will pay Rs. 10,000 on the first Rs. 10 lakh and 10 percent on the amount exceeding Rs 10 lakh.

For taxable income above Rs. 15 lakh and up to Rs. 25 lakh, the budget has fixed tax at Rs. 60,000 on the first Rs. 15 lakh and 20 percent on the amount exceeding Rs. 15 lakh.

For taxable income above Rs. 25 lakh, taxpayers will pay Rs. 2,60,000 on the first Rs. 25 lakh and 27 percent on the amount exceeding Rs. 25 lakh. An additional 2 percentage points will be levied on taxable income exceeding Rs 40 lakh.

Under the existing Income Tax Act 2058, a single individual's first Rs 5 lakh and a couple's first Rs 6 lakh in annual income attracted only 1 percent social security tax. The next Rs 2 lakh was taxed at 10 percent, the following Rs 3 lakh at 20 percent, the next Rs 10 lakh at 30 percent, the next Rs 30 lakh at 36 percent, and income above Rs 50 lakh at 39 percent.