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Contact us
To Buy: 1800-258-5899 (9:30 AM to 6:30 PM)
For Existing Policy: 1800-103-0003/ 1800-180-0003/ 1800-891-0003
customerservice@canarahsbclife.in
Knowledge Centre Team
November 6, 2020
156 Views
4 Minute Read
“In this world, nothing can be said to be certain, except death and taxes,” these words by Benjamin Franklin, one of the founding fathers of the US, are still relevant. Taxes are certain, but the rates definitely change, as it happened recently in India. The Finance Minister Nirmala Sitharaman announced a new tax regime along with the Union Budget 2020. In one of the biggest income tax reforms in the country, the finance minister has introduced the new tax rate slabs.
The government, however, made the new tax rates optional and added a condition. If you opt for the new tax structure, you will have to forego all the deductions allowed under the existing tax structure like the premiums paid for life and health insurance. Let us take a look at the income tax rates under the existing structure and the changes under the new tax structure vs the old one.
Under the existing tax system, the income tax varies as per the age of the assessee. Taxpayers have been divided into three categories—below 60 years, between 60 and 80 years and over 80 years.
An annual income of up to Rs 2.5 lakh is exempted from income tax, while income between Rs 2.5 lakh and Rs 5 lakh is taxable at 5%.
An annual income between Rs 5 lakh and Rs 10 lakh is taxed at 20%, while income above Rs 10 lakh is taxed at 30%.
All the income tax slabs remain the same, just the income exempted from tax is Rs 3 lakh instead of Rs 2.5 lakh
An annual income of Rs 5 lakh is exempted from income tax without availing any rebate. Tax on other slabs remains the same.
Individual having , an annual income of up to Rs 5 lakh has effectively been made tax free by offering a rebate under Section 87A of the Income Tax Act, 1961.
People who have an annual income of over Rs 50 lakh have to pay an additional surcharge on the amount of the income tax. For instance, the surcharge for income between Rs 50 lakh and Rs 1 crore is 10%. It is 37% for income exceeding Rs 5 crore, with different rates of surcharge for other income slabs.
Click here to use - Income Tax Calculator
There is an additional 4% Health & Education Cess that needs to be paid on every front on the amount of income tax and surcharge being paid.
In contrast to the existing tax structure, the latest tax structure has more income slabs and lower tax for people earning less than Rs 15 lakh. Income below Rs 5 lakh remains tax-free with rebate. An annual income between Rs 5 lakh and Rs 7.5 lakh will be taxed at 10% and income between Rs 7.5 lakh and Rs 10 lakh at 15%.
Similarly, income between Rs 10 lakh and Rs 12.5 lakh will be taxed at 20%, while an income between Rs 12.5 lakh and Rs 15 lakh will be taxed at 25%. The tax on income above Rs 15 lakh is 30%, the same as under the existing tax structure.
On first look, the new tax structure seems better, but one needs to dig deeper. Under the new tax structure, the tax rates are low, especially for people earning less than Rs 15 lakhs. For instance, someone earning Rs 10 lakh a year, will save Rs 37,500 in taxes under the new tax structure. However, under the latest tax structure, you will not be able to avail any tax exemptions or deductions.
Some of the common exemptions are house rent allowance and leave travel allowance which will not be available, while some popular deductions are those allowed under Section 80C and Section 80D of the Income Tax Act, 1961 will also not be available.
The suitability of the tax structure will vary depending on the level of investments one makes. Take into account all the exemptions you get and the deductions you are eligible for. Add up the exemptions and deductions and deduct them from your annual income. If your taxable income is lower, then it is not advisable to adopt the latest tax structure.
Conclusion
The existing tax structure incentivises savings and investments. People invest in financial products and are rewarded for it. You can invest in iSelect Smart360 Term Plan by Canara HSBC Life Insurance and avail tax deduction up to Rs 1.5 lakh in a year under the existing tax structure. The iSelect Smart360 Term Plan offers safety with tax savings.
Hi, I am Radhika Palkar. I am a Practicing Chartered Accountant, mainly working as an advisor to foreign companies with regards to managing their operations in India. I also take keen interest in associating myself with start-ups in India from the stage of incorporation, bookkeeping to income tax filling and in advising the management on cost price analysis thus we act like a virtual CFO for the entities in their growth phase.
I am here today as part of the Tax video series by Canara HSBC Life Insurance Company. In this video I will be talking about the amount of tax one needs to pay as per Budget 2020. I will also do a comparison with the previous taxation rules and highlight the changes that have been made. So, let’s understand tax liability as per Budget 2020.
Taxes are certain, but the rates definitely change, as it happened recently in India. The Finance Minister Nirmala Sitharaman announced a new tax regime along with the Union Budget 2020. In one of the biggest income tax reforms in the country, the finance minister has introduced the new tax rate slabs.
The government, however, made the new tax rates optional and added a condition. If you opt for the new tax structure, you will have to forego all the deductions allowed under the existing tax structure like the premiums paid for life and health insurance.
The income tax slab and the rates under the old and new tax regimes are explained in this table let me try to explain this table in simpler words.
| General Tax Rate for A. Y. 2021-22 | |||||
| A | Taxable Income | For Individual & HUF including Resident or non resident (Who is below age of 60 Years) | Resident or Resident but not ordinarily Resident Super Senior Citizen (Who is age of 80 years or more at any time during the Previous Year) | ||
| Tax rate (Existing Scheme) | Tax rate (New Scheme) | Tax rate (Existing Scheme) | Tax rate (New Scheme) | ||
| Upto Rs. 2,50,000 | Nil | Nil | Nil | Nil | |
| Rs. 2,50,001 to Rs. 5,00,000 | 5 % | 5 % | Nil | 5 % | |
| Rs. 5,00,001 to Rs. 7,50,000 | 20% | 10% | 20% | 10% | |
| Rs. 7,50,001 to Rs. 10,00,000 | 20 % | 15 % | 20 % | 15 % | |
| Rs. 10,00,001 to Rs. 12,50,000 | 30 % | 20 % | 30 % | 20 % | |
| Rs. 12,50,000 to Rs. 15,00,000 | 30 % | 25 % | 30 % | 25 % | |
| Above Rs. 15,00,000 | 30 % | 30 % | 30 % | 30 % | |
| B | Taxable Income | Resident or Resident but not ordinarily Resident Senior Citizen (Who is age of 60 years or more but less than 80 years if age at any time during the previous Year) | |
| Tax rate (Existing Scheme) | Tax rate (New Scheme) | ||
| Upto Rs. 2,50,000 | Nil | Nil | |
| Rs. 2,50,001 to Rs. 3,00,000 | Nil | 5 % | |
| Rs. 3,00,001 to Rs. 5,00,000 | 5 % | 5 % | |
| Rs. 5,00,001 to Rs. 7,50,000 | 20 % | 10 % | |
| Rs. 7,50,001 to Rs. 10,00,000 | 20 % | 15 % | |
| Rs. 10,00,001 to Rs. 12,50,000 | 30 % | 20 % | |
| Rs. 12,50,000 to Rs. 15,00,000 | 30 % | 25 % | |
| Above Rs. 15,00,000 | 30 % | 30 % | |
Thus, in simpler words, under the existing tax system, the income tax varies as per the age of the assesse. Taxpayers have been divided into three categories—below 60 years, between 60 and 80 years and over 80 years.
For an individual below 60 years of age.
An annual income of up to Rs 2.5 lakh is exempted from income tax, while income between Rs 2.5 lakh and Rs 5 lakh is taxable at 5%.
An annual income between Rs 5 lakh and Rs 10 lakh is taxed at 20%, while income above Rs 10 lakh is taxed at 30%.
For an individual between 60 years and 80 years.
All the income tax slabs remain the same, just the income exempted from tax is Rs 3 lakh instead of Rs 2.5 lakh
For an individual over 80 years of age.
An annual income of Rs 5 lakh is exempted from income tax without availing any rebate. Tax on other slabs remains the same.
New Tax Structure
In contrast to the existing tax structure, the latest tax structure has more income slabs income up to rupees 2.5 lakh is exempt from income tax from 2.5 lakhs is taxable at 5% and annual income between 5 lakh and 7.5 lakhs will be taxed at 10% and income between Rs 7.5 lakh and Rs 10 lakh at 15%. Similarly, income between Rs 10 lakh and Rs 12.5 lakh will be taxed at 20%, while an income between Rs 12.5 lakh and Rs 15 lakh will be taxed at 25%.
The tax on income above Rs 15 lakh is 30%, the same as under the existing tax structure. Under the latest tax structure, the tax payer will not be able to avail any tax exemptions or deductions. Some of the common exemptions are house rent allowance and leave travel allowance which will not be available, while some popular deductions are those allowed under Section 80C and Section 80D of the Income Tax Act, 1961 will also not be available.
Applicability of Surcharge, Higher Education Cess remains same under both the tax structures.
Which is better?
Individual having , an annual income of up to Rs 5 lakh has effectively been made tax free by offering a rebate under Section 87A of the Income Tax Act, 1961. Thus, in both the old and latest income tax slab, income tax on annual income up to Rs. 5 lakh is effectively exempt from tax.
It is advisable to do a proper comparative evaluation and analysis under both regimes, to see what works out best for the tax pater, before opting to continue with the old one or opting for the new one.
Note that the choice can be exercised every year and any regime which is beneficial can be adopted by the individual (except for those who have income from business or profession). Individuals who have income from business or profession cannot switch between the new and old tax regimes every year. If they opt for the new taxation regime, such individuals get only one chance in their lifetime to go back to the old regime. Further, once you switch back to existing tax regime, you will not be able opt for new tax regime unless your business income ceases to exist.
The income tax department has brought out a tax comparison utility, which is available on their web portal and in which, an individual taxpayer can use to evaluate which option is better for him/her.
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