Budget 2020 for Employees

Budget 2020 proposed a new alternative income tax slab/rates for individual/HUF assesses from Financial Year 2020-21 onwards.

– Freedom is given to the assessee to choose between old and new rates.

New Tax rates proposed in Budget 2020 for Individuals and HUF are:

Income Bracket In Rs Proposed Tax Rates* Existing Rates
From 1 to 2,50,000 NIL NIL
From 2,50,001 TO 5,00,000 5% 5%
From 5,00,001 TO 7,50,000 10% 20%
From 7,50,001 TO 10,00,000 15% 20%
From 10,00,001 TO 12,50,000 20% 30%
From 12,50,001 TO 15,00,000 25% 30%
Above 15,00,000 30% 30%

If new rates are chosen, certain deductions/exemptions which are available till now will not be available. Very few deductions are available even if new rates are chosen.

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A. Following deductions are available even if new tax rates are chosen:

1. Sec 10(14) read with Rule 2BB:

i. Transport allowance for handicapped person for commuting between his house and office. (Rs.3200/- per month)

ii. Conveyance allowance for performance of office duties (Actual)

iii. Travel allowance for tour or for transfer (Actual)

iv. Daily allowance to meet ordinary expenditure when he is performing duty away from the office.(Actual)

2. Sec 87A: Rebate in Tax upto Rs.12500/- if Total Income does not exceed Rs.5,00,000/-

3. Sec 80CCD(2): Employer contribution to NPS (subject to maximum of 10% of salary. In case of Central Government employees it is 14%)

4. Sec 24(a): 30% adhoc deduction on rent received from house

5. Sec 24(b): Interest paid on housing loan deduction is available in case of let out property. However loss from let out house property not allowed to be deducted from salary income or any other income.

*B. The following deductions are not available – in case of salaried and other persons having no business income in case new tax rates are chosen:

1. 10(5) – Leave travel allowance (LTA)

2. 10(13A) – House rent allowance (HRA)

3. 10(14) – uniform, helper, research, conveyance/transport etc except 4 allowances as mentioned at point No.A

4. 10(17) – allowance received by MP and MLA

5. 10(32) – exemption of Rs.1,500 per child if minor child income is clubbed

6. 16 – standard deduction, Professional tax and entertainment allowance

7. 24(b) r.w. 23(2)–housing loan interest for self-occupied property

8. 57(iia) – Rs. 15,000 deduction from family pension

9. All Chapter VI A exemptions/deductions such as PF, NSC Bonds, LIP amounting to Rs.1,50,000/- and additional deduction for NPS of Rs.50,000/- u/s 80CCD(1B).

10. Set off of Loss from house property with any other head of income

When to choose new option?

Employee shall compare his tax liability under old rates and new rates and he can choose whichever is beneficial to him. This can be decided every year while filing the income tax return.

Which tax rates are to be adopted by the drawing officer while deducting tax from salaries? Old rate or new rate?: Answer is old rates

Comparison of tax payable under old and new system: Department has given online utility for this purpose which is available at:

https://www.incometaxindiaefiling.gov.in/Tax_Calculator/index.html?lang=eng

New Section to tax the employer contribution:

Section 17(2) is amended. If the contribution by the employer in the following funds is more than Rs.7,50,000/- per annum, the excess amount will be treated as taxable prerequisite. Not only that the interest or dividend accrued on that excess amount will also be considered as taxable perquisite.

  • Recognised Provident Fund
  • New Pension Scheme
  • Approved Superannuation Fund

80EEA: Tax exemption on interest paid on housing loans. Earlier this deduction is available for loans sanctioned from 01-04-2019 to 31-3-2020. Now it is extended by one more year i.e, up to 31-3-2021.

Note: These are the major amendments applicable to employees in the Budget 2020

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5 Comments

  1. nilesh bhandari says:

    Well articulated .However, one major issues -Employers have to ask for the Investment proofs etc from employees in the beginning of the year. How this will be addressed , as TDS on salary has to be made by Employer from beginning of the year. Does it means that employer has to ask the employee the option he wants to exercise in year beginning itself . This will be a really tough for Employer/HR Dept. Complex situation where hundreds of employees are there in the organization.

    1. thiruvayu says:

      As per Section 192, tax is to be deducted as per the rates in force for the financial year. So TDS on salaries is to be made as per rates prescribed in Section 2(1) of the Finance Act 2020 read with Part I of the First Schedule to the Act which are old rates.

      New rates are prescribed in Section 115BAC which is applicable only when option is exercised at the time of filing his income tax return.

      So I am of the considered opinion, TDS is to be made at regular rates and not rates prescribed u/s 115BAC

  2. CA K Rajendra Prasad says:

    Dear CA Thiruvayu Kumar
    Comprehensive information , presented lucidly without missing all points. Qualitative , Informative. I am sure that common people also can easily understand the proposed changes in the budget 2020. Keep writing . Thank you once again.

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