In an attempt towards the Direct tax code (DTC), Our Honourable finance Minister has announced dual slab rate. where Individuals has given option to choose the old slab rate or slab rate as defined in recently announced finance act, Now there are different questions in the minds of Assesses, which slab would be beneficial and whether do we have an option to select slab every year or is it irreversible decision. I have tried to resolve this query, the clarity for availing option is clarified by the Budget Memorandum available on the website:

New Vs Old Income Tax Slabs

The Answer to this long debatable point is, the person who has done tax planning in earlier years, and has investment in LIC and other investment and has also availed home loan, so deduction benefit will always be more than the lower rate as defined in the recent finance act, however if anyone who has not much of investment and has not availed home loan yet, must opt for the new slab. Around 70 Deduction you must forgone for availing the new slab rate benefit. Many experts have opined that it is a loss to Assesses, However I do not completely agree with them as all the Assesses does not avail all the benefits which have to forgone while availing the benefit.

Now the Assesses, must evaluate himself in which he would be beneficial at the time of return filing and he must calculate it also at time making Advance tax calculations.

Now can Assesses change the slab rate obtained once, the Answer is Yes. As clarified in budget memorandum Assesses has option to change the method every year, however the person who has business income, cannot change this method once it is opted. so, assesses (who does not have any business income) need to evaluate the method every year and will select the method which is more beneficial to him. Further the government may also come with ITR utility which will compare the slab benefit.

Further in my opinion the benefit of the old slab is not available for ever, it is step towards the Direct tax code. so, government may scrap old slab in phased manner and all the Assesses will have to file the return as per new slab after few years.

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  1. P.Srinivasulu says:

    Is the tax slab for the income range between 250000 and 500000 is 5% as it was before or it is zero now??? If it is still 5%only as some people opine so, then the difference between income levels of 499999 and 500001(just Rs2/- difference ) is Rs 12,500/-an absurd situation> pl clarify the correct interpretation.

    1. says:

      Unfortunately there is no Marginal relief for tax amount Like Surchage. so yes there will be an substantial impact on slight increase to 5 lacs rs. tax calculation can be referred through this government tool. Further slab rate mentioned in article is as pe budget memorandum. Please consider the rate as 5% for 2.5 lacs to 5 lacs.

      for the savings part, Government focus now a days to increase consumption and increase a demand, however youth need to encourage for saving as well.

      Hope i am able to respond properly.

  2. p.srinivasulu says:

    The exemptions earlier given in earlier budgets was meant to encourage savings by the common man so that he can plan his living after he retires. How can an extravagant spender live without pension or saving after he reaches 60 yrs age? should it not be the concern of the Govt now?? More than promoting consumption,encouraging saving should have been the FM’s priority now!! we cant compare our country with America now itself!!! Hope this wisdom will be thrown up during budget discussion to help the common man for his future living!! . There is no pension even to a govt servant now after 2004? How can a person live without a saving/ the awareness for saving for the future is still not there in the youth today!!!
    Another point is- the difference in tax incidence between a person having Rs 499999 and another Rs 500001 (Just 2 rs diff) is RS 12500, due to the benefit given under Sec87a -which was given to the to one and denied to the other!!! it is not clear whether the the tax new slab between income levels of 250000 and 500000 is nil or same as before i.e 5%. This is being interpreted by different people in diff ways/ If the the rate is nil for this margin of people, it is ok. otherwise the sec 87A creates confusion as pointed out above!! Experts’ views on the above will be awaited by me

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January 2021