- CA. Ruhi Kalra
- | Income Tax - Articles |
- 05 Feb 2020
- 6,819 Views
- 7 comments
Unlike the announcement of “Taxation laws (Amendment) Ordinance,2019”, the Finance Bill for fiscal year 2020-21 presented on 1st February,2020 brought negative impact on the stock market. At the end of the day, SENSEX fell for over 1000 points. The Union Budget for the year 2020-21 was presented in the milieu of depressed economic case where all the important drivers of growth namely private investments, private consumptions and exports were spluttering.
This year’s budget has specifically focused on the following:
1. Simplification of tax payments by gradually phasing out the exemptions and having a flat rate.
2. Increase in the private consumption power
3. Reduction in tax litigations
| Option 1 | Total income (After exemptions and standard deduction) | Individual | Option 2 | Total income (Without exemptions and standard deduction) | Individual |
| Upto INR 250,000 | 0% | Upto INR 250,000 | 0% | ||
| 250,000 to 500,000* | 5% | 250,000 to 500,000* | 5% | ||
| 500,000 to 750,000 | 20% | 500,000 to 750,000 | 10% | ||
| 750,000 to 1,000,000 | 20% | 750,000 to 1,000,000 | 15% | ||
| 1,000,000 to 1,250,000 | 30% | 1,000,000 to 1,250,000 | 20% | ||
| 1,250,000 to 1,500,000 | 30% | 1,250,000 to 1,500,000 | 25% | ||
| 1,500,001 and above | 30% | 1,500,001 and above | 30% |
In the proposal, the government has changed the tax rates for Individual/HUF in the following manner:
*Relief under Section 87A-INR 12500, if the total income does not increase 5 Lakhs is intact in both the options. These tax rates would be subject to surcharge and cess.
The Option 2 proposed can be availed by forgoing the 70 tax exemptions that are currently available to the Individual/HUF as the case may be (such as standard deduction, leave travel allowance, house rent allowance, mortgage interest deduction on house property, contribution towards Provident Fund etc.).
The Option shall be optional for every year for the Individual/HUF not having business income. The option once exercised cannot be changed.
The government has tried to give relief to the taxpayers whose incomes are up to INR 15 Lakhs. These concessions are given in an innovative fashion by predicting them on taxpayers giving up their exemptions.
Once these proposals are passed by the Parliament, these changes will become effective from the financial year 2020-21.
A small analysis on the new vs. old regime of taxation has been done below:
Case A: When we are not availing any deduction/exemption under chapter VI A or Section 10.
| Case 1: Income under salary: INR 350,000 | |||||
| Option 1 | Income under Salary | 350,000 | Option 2 | Income under Salary | 350,000 |
| Less: Standard deduction | 50,000 | ||||
| Taxable income | 300,000 | Taxable income | 350,000 | ||
| Income tax computation | Income tax computation | ||||
| Upto INR 250,000 | NIL | Upto INR 250,000 | NIL | ||
| 250,000 to 300,000 | 2,500 | 250,000 to 350,000 | 5,000 | ||
| Relief under section 87A | 12,500 | Relief under section 87A | 12,500 | ||
| Tax payable | NIL | Tax payable | NIL | ||
|
No change |
|||||
–
| Case 2: Income under salary: INR 600,000 | |||||
| Option 1 | Income under Salary | 600,000 | Option 2 | Income under Salary | 600,000 |
| Less: Standard deduction | 50,000 | ||||
| Taxable income | 550,000 | Taxable income | 600,000 | ||
| Income tax computation | Income tax computation | ||||
| Upto INR 250,000 | NIL | Upto INR 250,000 | NIL | ||
| 250,000 to 500,000 | 12,500 | 250,000 to 500,000 | 12,500 | ||
| 500,000 to 600,000 | 20,000 | 500,000 to 600,000 | 10,000 | ||
| Relief under section 87A | NIL | Relief under section 87A | NIL | ||
| Tax payable | 32,500 | Tax payable | 22,500 | ||
|
10,000 more tax payable in the old Case |
|||||
Case B: When we are availing deduction/exemption under chapter VI A or Section 10. Analysis in this case has been done on the following assumptions:
- HRA: 10% of the salary
- Chapter VI A Exemption: Maximum limit
- Limit under section 80CCD: Not considered
| Case 1: When income is INR 250,000 | |||||
| Option 1 | Income under Salary | 250,000 | Option 2 | Income under Salary | 250,000 |
| Less: Standard deduction | 50,000 | Income tax payable | NIL | ||
| Less: Section 10 deduction | 25,000 | ||||
| Less: Chapter VI A Exemption | 150,000 | ||||
| Taxable income | 25,000 | ||||
| Tax payable | NIL | ||||
|
No change |
|||||
–
| Case 2: When income is INR 600,000 | |||||
| Option 1 | Income under Salary | 600,000 | Option 2 | Income under Salary | 600,000 |
| Less: Standard deduction | 50,000 | Income tax computation | |||
| Less: Section 10 deduction | 60,000 | Upto INR 250,000 | NIL | ||
| Less: Chapter VI A Exemption | 150,000 | 250,000 to 500,000 | 12,500 | ||
| Taxable income | 340,000 | 500,000 to 600,000 | 10,000 | ||
| Income tax computation | Relief under section 87A | NIL | |||
| Upto INR 250,000 | NIL | Tax payable | 22,500 | ||
| 250,000 to 340,000 | 4,500 | ||||
| Relief under section 87A | 12,500 | ||||
| Tax payable | NIL | ||||
|
22,500 more tax payable in new proposed Case vs NIL in old Case |
|||||
–
| Case 3: When income is INR 1,600,000 | |||||
| Option 1 | Income under Salary | 1,600,000 | Option 2 | Income under Salary | 1,600,000 |
| Less: Standard deduction | 50,000 | Income tax computation | |||
| Less: Section 10 deduction | 160,000 | Upto INR 250,000 | NIL | ||
| Less: Chapter VI A Exemption | 150,000 | 250,000 to 500,000 | 12,500 | ||
| Taxable income | 1,240,000 | 500,000 to 750,000 | 25,000 | ||
| Income tax computation | 750,000 to 1,000,000 | 37,500 | |||
| Upto INR 250,000 | NIL | 1,000,001 to 1,250,000 | 50,000 | ||
| 250,000 to 500,000 | 12,500 | 1,250,000 to 1,500,000 | 62,500 | ||
| 500,000 to 1,000,000 | 100,000 | 1,500,001 to 1,600,000 | 30,000 | ||
| 1,000,000 to 1,240,000 | 72,000 | Relief under section 87A | NIL | ||
| Relief under section 87A | NIL | Tax payable | 217,500 | ||
| Tax payable | 184,500 | ||||
|
33,000 more tax payable in the new scenario |
|||||
By bifurcating the analysis in two cases vis-à-vis availment of exemptions/deductions under both the options available, I just wanted to emphasize that the utilization of limit of INR 150,000 available, totally depends on the investment and consumption power of an individual. Some of the individuals might not be able to exhaust the limit of INR 150,000, on the other hand, some of the individuals can claim various expenditures such as tuition fees for their children, interest on house property etc. as a deduction under chapter VI A and the same is a small amount for them to claim as deductions.
Concluding remarks:
A proper analysis by the employees should be made before giving the investment declarations for the Financial Year 2020-21. The same should be in line with the exemptions availed and investments made in 2019-2020.
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OLD SYSTEM OF TAX COMPUTATION IS BETTER THAN THIS NEW INTRODUCTION
Thank you mam keep it up 👍🏻
Dear readers,
A small mistake is apparent from the reading. Standard deduction under section 16 is not to be considered under Option 2
Apologies for the inconvenience.
This is regarding Illustrations depicted tax calculations using both Option1 and Option2. You have considered standard deduction for Option 2 which is wrong. Section 16 deductions are not allowed in the new tax regime. Please revisit your calculations.
VERY HELPFUL WRITE UP.PL CLARIFY THR FOLLOWING;
1.IS THE DEDUCTION OF RS 50000/- UNDER 80TTB AVAILABLE IN THE NEW SCHEME.
2. IS THE MINIMUM THRESHHOLD OF RS 300000 STILL APPLICABLE.
BOTH QUESTIONS ARE RELATED TO SENIOR CITIZENS.
WILL APPRECIATE CLARIFICATION BY EMAIL