So the Union Budget 2020 has led to so many expectations (positive of course) for all the tax assessees in terms of one of the basic amendment- the main one for which we all were waiting for since every-time I guess…
Changes in Income Tax Slab rates
So here comes the New slab for Individuals * but with certain T&C (of course)-
But before discussing the slab rates I think we all must know certain important points regarding the same.
a) This slab is for INDIVIDUAL only.
b) This slab is OPTIONAL.
c) The people opting this slab shall not be entitled to around 70 deductions and exemptions (BIG LOSS)
d) Option to be exercised on or before due date of ITR filing for AY 2021-22. (BE FAST IN CALCULATING)
e) Assessees having Business income shall have the option to withdraw from the new slab only for once. (PLEASE THINK BEFORE OPTING)
f) Only 2 deductions are allowed- Section 80CCD(2) [i.e., employer’s contribution on account of an employee in a notified pension scheme] and Section 80JJAA [i.e. for new employment]
Now we shall discuss the rates offered by New Slab and compare the same with old rates-
| Income slabs (Rs) | Tax Rate (Old Regime) | Tax Rate (New Regime – devoid of exemptions & deductions) |
|---|---|---|
| Up to 2.5 lakh | Nil | Nil |
| 2.5-5 lakh | 5% | 5% |
| 5-7.5 lakh | 20% | 10% |
| 7.5-10 lakh | 20% | 15% |
| 10-12.5 lakh | 30% | 20% |
| 12.5-15 lakh | 30% | 25% |
| Above 15 lakh | 30% | 30% |
Now the most important question arises- Which one to choose??
Lets take an example for better understanding-
Example No.1-
Particulars | Old Tax Regime (Rs) | New Tax Regime (Rs) |
Gross Income | 1,200,000 | 1,200,000 |
Deductions: | ||
U/Sec: 80C | 150,000 | – |
U/Sec: 80D | 25,000 | – |
U/Sec: 24(b) | 75,000 | – |
Taxable Income | 950,000 | 1,200,000 |
Tax Slab (OLD) | ||
0 to 2.5 Lakh | – | – |
2.5 to 5 Lakh @ 5% | 12,500 | – |
5 Lakh to 10 Lakh @ 20% | 90,000 | – |
> 10 Lakh @ 30% | – | – |
Tax Slab (NEW) | ||
0 to 5 Lakh | – | – |
2.5 to 5 Lakh @ 5% | – | 12,500 |
5 to 7.5 Lakh @ 10% | – | 25,000 |
7.5 Lakh to 10 Lakh @ 15% | – | 37,500 |
10 Lakh to 12.5 Lakh @ 20% | – | 40,000 |
12.5 Lakh to 15 Lakh @ 25% | – | – |
> 15 Lakh @ 30% | – | – |
Income Tax | 102,500 | 115,000 |
Cess @ 4% | 4,100 | 4,600 |
Total Tax payable | 106,600 | 119,600 |
Example No.2-
Particulars | Old Tax Regime (Rs) | New Tax Regime (Rs) |
Gross Income | 700000 | 700000 |
Deductions: | ||
U/Sec: 80C | 150,000 | – |
U/Sec: 80D | 25,000 | – |
U/Sec: 24(b) | 75,000 | – |
Taxable Income | 450000 | 700000 |
Tax Slab (OLD) | ||
0 to 2.5 Lakh | – | – |
2.5 to 5 Lakh @ 5% | 10000 | – |
5 Lakh to 10 Lakh @ 20% | – | – |
> 10 Lakh @ 30% | – | – |
Tax Slab (NEW) | ||
0 to 5 Lakh | – | – |
2.5 to 5 Lakh @ 5% | – | 12,500 |
5 to 7.5 Lakh @ 10% | – | 20000 |
7.5 Lakh to 10 Lakh @ 15% | – | |
10 Lakh to 12.5 Lakh @ 20% | – | – |
12.5 Lakh to 15 Lakh @ 25% | – | – |
> 15 Lakh @ 30% | – | – |
Income Tax | 10000 | 32500 |
Cess @ 4% | 400 | 1300 |
Total Tax Outgo | 10400 | 33800 |
Example No.3-
Particulars | Old Tax Regime (Rs) | New Tax Regime (Rs) |
Gross Income | 500000 | 500000 |
Deductions: | ||
U/Sec: 80C | – | – |
U/Sec: 80D | – | – |
U/Sec: 24(b) | – | – |
Taxable Income | 500000 | 500000 |
Tax Slab (OLD) | ||
0 to 2.5 Lakh | – | – |
2.5 to 5 Lakh @ 5% | 12,500 | – |
5 Lakh to 10 Lakh @ 20% | – | – |
> 10 Lakh @ 30% | – | – |
Tax Slab (NEW) | ||
0 to 5 Lakh | – | – |
2.5 to 5 Lakh @ 5% | – | 12,500 |
5 to 7.5 Lakh @ 10% | – | – |
7.5 Lakh to 10 Lakh @ 15% | – | – |
10 Lakh to 12.5 Lakh @ 20% | – | – |
12.5 Lakh to 15 Lakh @ 25% | – | – |
> 15 Lakh @ 30% | – | – |
Income Tax | 12,500 | 12,500 |
Cess @ 4% | 5,00 | 5,00 |
Total Tax Outgo | 13,000 | 13,000 |
So basically it seems that if we are falling in high income group and have invested in Tax saving schemes then we should clearly go for Old slab.
While for individuals in the middle-income group, earning a gross income of say Rs 4-5 lakh; the new regime may prove advantageous. (with no deductions and tax savings available)
If you are looking to fulfill your financial obligations, namely – wealth creation through investments in tax-saving instruments; paying premiums to address insurance needs (life and health); paying children’s tuition fees; paying Equated Monthly Installments (EMIs) of an education loan; buying a house with a home loan; and so on, the older regime still works in the interest of your financial well being.
I hope this reading will be useful for you.
Author Bio
Does New scheme of Slab rates for F y-2020-21 applicable to senior citizens (i.e., >60 years) and Super Senior citizens (i.e., > 80 years)
fixed salary is 4,31000 & variable pay is 90000 . Which tax suitable
I guess there is some clerical mistake while explaining the new slab in your examples. Under income tax calculation as per new slab 1st slab would be Upto Rs.2.5Lakh Nil instead of up to Rs5 lakh NIL.
Hi.
Very informative details; I think in both the cases Rs.12500 can be availed U/S 87 A. if the taxable income is below Rs.5lacs.