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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
123 Views
4 Minute Read
When it comes to levying taxes, India may not be on the top of the list. That honor goes to many European countries such as Belgium, Germany, Hungary, Austria and Denmark where taxes can go up to 50% or more. However, India tops the chart when it comes to complexity in tax structure; and constant revisions in the tax system add to the confusion.
In Budget 2020, a new tax regime and revised income tax slabs were proposed for FY 2020-21. As you may be aware, income tax rates in India vary for non-senior citizens, senior citizens and super senior citizens. Hence, let’s look at the income tax slabs for FY 2020-21 applicable to these 3 age groups. We will also compare the tax rates and slabs under the old tax regime with the new one in the table below.
Individual taxpayers in India can be classified as the following, for the purpose of income tax:
| Income Range | Tax to be paid (Less Than 60 Years Old) |
|---|---|
| Income up to 2.5 Lakh | No tax |
| Income from 2.5 Lakh – 5 Lakh | 5% of income above Rs 2.5 lakhs |
| Income from 5 Lakh – 10 Lakh | Rs 12,500+ 20% of income above Rs 5 lakhs |
| Above 10 Lakh | Rs 1,12,500+ 30% of income above Rs 10 lakhs |
| Income Range | Tax to be paid (More Than 60 Years, Less Than 80 Years Old) |
|---|---|
| Income up to 3 Lakh | No tax |
| Income from 3 Lakh – 5 Lakh | 5% of income above Rs. 3 lakhs |
| Income from 5 Lakh – 10 Lakh | Rs 10,000+ 20% of income above Rs 5 lakhs |
| Above 10 Lakh | Rs 1,10,000+ 30% of income above Rs 10 lakhs |
| Income Range | Tax to be paid (More Than 80 Years Old) |
|---|---|
| Income up to 5 Lakh | No tax |
| Income from 5 Lakh – 10 Lakh | 20% of income above Rs. 5 lakhs |
| Above 10 Lakh | Rs. 1,00,000 +30% of income above Rs. 10 lakhs |
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. Surcharge will be applicable based on Individual’s Income Slab.
Latest Income Tax Slab FY 2020-21
New Tax Regime for All age Individual Taxpayers for FY 2020-21 (AY 2021-22):
Budget 2020 introduced a new income tax slabs for individual tax payers with lower tax rates but more tax slabs. The new regime offers reduced tax rates and compliances. Also, as most of the exemptions and deductions are not available, tax filing becomes simpler as there is lesser documentation required.
Moreover, the reduced tax rate provides more disposable income to people who could not invest in specified instruments due to certain financial or personal reasons. Therefore, offering increased liquidity in the hands of the taxpayers and allowing the flexibility of customizing the investment choice.
| Old Tax Regime | New Tax Regime | ||
|---|---|---|---|
| Up to Rs. 2.5 lakh | Nil | Up to Rs. 2.5 lakh | Nil |
| Rs. 2,50,001 – 5 lakh | 5% | Rs. 2,50,001 – 5 lakh | 5% |
| Rs. 5,00,001 – 10 lakh | 20% | Rs. 5,00,001 – 7.5 lakh | 10% |
| Rs. 7,50,001 – 10 lakh | 15% | ||
| Above Rs. 10 lakh | 30% | Rs. 10,00,001- 12.5 lakh | 20% |
| Rs. 12,50,001 – 15 lakh | 25% | ||
| Above Rs. 15 lakh | 30% |
In both the old and latest income tax slab, income tax on annual income up to Rs. 5 lakh, for individuals below 60 years of age, is effectively exempt from tax. The IT department provides a rebate of up to Rs. 12,500 on annual income up to Rs. 5 lakh, which is in fact 5% of 2,50,000 (Rs. 5,00,000 – 2,50,000). Health education cess of 4% and rates of surcharge are also the same.
Options to choose:
From FY 2020-21, taxpayers can choose to either opt for lower tax rates as mentioned above by foregoing tax exemptions and deductions or stick with the old regime for availing these income tax deductions.
If you opt for the latest income tax slabs for 2020-21, you will have to relinquish at least 70 exemptions and deductions including those available under sections 80C, 80D, 80CCD(except section 80CCD(2) and more. Here is a brief list of exemptions that you will have to forego.
Life insurance investments
House rent allowance
Home loan interest paid
Education loan interest paid
Leave travel allowance (LTA)
House rent allowance (HRA)
Health insurance premium
Standard deduction on rent
Taxpayers have to choose the right tax regime based on their income structure, type and investments to derive maximum tax benefits. Based on their profile they should decide whether to opt for lower income tax rates or exemptions.
Things to Consider Before Opting For the New Tax Regime
For income segments up to Rs 15 lakh, the New Tax Regime has proposed lower income-tax rates but only at the cost of you giving up exemptions and deductions available under various provisions of the Income Tax Act. This means you will have let go of some exemptions including Leave Travel Allowance (LTA), House Rent Allowance (HRA) etc., and deductions including on Insurance Premium, Savings Account Interest available under chapter VI A of the IT Act Section 80 such as 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG, 80GGA, 80GGC, etc.
Even the standard deduction of Rs 50,000 under Section 16 available to salaried individuals and the deduction on home loan interest, under Section 24(b) will not be allowed. However, the deduction under Section 80CCD (2), which is employer’s contribution on account of an employee in a notified pension scheme and Section 80JJAA for new employment can be claimed.
Therefore, one shall deeply understand both the sides before choosing the regime which is most beneficial for them. The new regime will do well to someone who is not intending to invest major amounts in tax saving plans.
Click here to use - Income Tax Calculator
Understanding the effect of the New Income Tax Regime on your income:
Understanding income tax can often be overwhelming for tax payers, and a lot of factors can even make it confusing. For instance, several people tend to end up calculating wrong deductions by deducting the allowable deductions from total tax liability instead of their Gross Total Income. Let’s see a few examples of how deductions and exemptions under the old regime or lack of them in the new regime will impact taxes:
Example 1: Claiming some of the all available exemptions and deductions
Person A of age less than 60yrs is a salaried employee who earns Rs 8 Lakhs per annum. He contributes towards EPF Rs 96,000 and also receives HRA benefits of Rs 9,000 in his salary. In addition, he is eligible for LTA and has incurred Rs.25,000 on travelling. However, he has no other savings beyond his EPF contribution. Let’s see how much taxes will the new tax regime save him:
| Tax Slab | Old Rates | New Rates | Tax / Old Rates | Tax / New Rates |
|---|---|---|---|---|
| Income up to 2.5 Lakh | 0% | 0% | ||
| Income from 2.5 Lakh – 5 Lakh | 5% | 5% | 12,500 | 12,500 |
| Income from 5 Lakh – 7.5 Lakh | 20% | 10% | 34,000 | 25,000 |
| Income from 7.5 Lakh – 10 Lakh | 20% | 15% | 7,500 | |
| Income from 10 Lakh – 12.5 Lakh | 30% | 20% | ||
| Income from 12.5 Lakh – 15 Lakh | 30% | 25% | ||
| Income above 15 Lakh | 30% | 30% | ||
| Total taxes | 46,500 | 45,000 | ||
| Cess | 1,860 | 1,800 | ||
| Total tax to be paid by Person A | 48,360 | 46,800 |
Therefore, Person A will save more taxes under the new tax regime, reducing their tax burden by Rs.1,560 in this example.
Example 2: Claiming all major exemptions and some of the deductions
Person B age of less than 60yrs earns Rs.13 Lakh in a year and contributes to EPF Rs 75,000. He has invested Rs.40,000 in a tax saving mutual fund (ELSS) and also has a Rs.1 Crore term life insurance for a premium of Rs 10,000. In addition, the person is eligible to claim tax exemption for Rs. 20,000 in LTA, Rs 30,000 in HRA, and Rs 26,400 for Sodexo meal coupons as a part of his taxable income. Let’s see how much taxes will the new tax regime save him:
| Tax Slab | Old Rates | New Rates | Tax / Old Rates | Tax / New Rates |
|---|---|---|---|---|
| Income up to 2.5 Lakh | 0% | 0% | ||
| Income from 2.5 Lakh – 5 Lakh | 5% | 5% | 12,500 | 12,500 |
| Income from 5 Lakh – 7.5 Lakh | 20% | 10% | 50,000 | 25,000 |
| Income from 7.5 Lakh – 10 Lakh | 20% | 15% | 50,000 | 37,500 |
| Income from 10 Lakh – 12.5 Lakh | 30% | 20% | 29,580 | 50,000 |
| Income from 12.5 Lakh – 15 Lakh | 30% | 25% | 12,500 | |
| Income above 15 Lakh | 30% | 30% | ||
| Total taxes | 1,42,080 | 1,37,500 | ||
| Cess | 5,683 | 5,500 | ||
| Total tax to be paid by Person B | 1,47,763 | 1,43,000 |
From this example also, the new tax regime works better and saves Person B an amount of Rs.4,763 in taxes. However, this doesn’t have to mean that the person stops his term insurance policy, because Tax benefits should only be seen as secondary function as the primary reason to buy insurance is the safety of your loved ones.
Tax Exemptions and Deductions under the Old Tax Regime
The older tax regime offered high rates but lot of options to reduce your tax liabilities. While exemptions are part of one’s regular salary, deductions extend opportunities to lower your tax burden by investing, making savings or purchasing specific items. One of the biggest deductions comes under Section 80C up to Rs.1.5 Lakh. Most common exemptions and deductions Indian taxpayers can benefit from are –
| Exemptions | Deductions |
|---|---|
| House Rent Allowance | Public Provident Fund & Employee Provident Fund |
| Leave Travel Allowance | ELSS (Equity Linked Saving Scheme) |
| Mobile and Internet Reimbursement | Saving Account Interest |
| Food Coupons or Vouchers | Life Insurance Premium |
| Company Leased Car | Principal and Interest component of Home Loan |
| Standard Deduction | Children Tuition Fees |
| Uniform Allowance | Health Insurance Premiums |
| Leave Encashment | Investment in NPS |
Investment in NPS
Income Tax slabs are introduced in the parliament budget every year and may be changed every year.
No, the income tax slabs are the same for males and females.
Yes, income from every source including exempt income must be disclosed at the time of filing a return.
Agricultural income is exempt from income tax. However, any kind of non-agricultural income earned by any individual is taxable.
No, the due date for filing income tax return may not be the same for Individuals & HUF and companies.
Hello friends, I am Prince Doshi. I am a qualified and practicing chartered account for over 9 years and provide advisory services in the field of direct and indirect access audits, GST Implementation, MIS and More. Today I am here as a part of the tax video series initiative by Canara HSBC Life Insurance Company. In this video, we will discuss about the income tax slab rates applicable for financial year 2019-20,
Now we see income tax slab rates applicable for individual and HUF in the age group 61 years to 80 years, for income
Now, for individual having age 81 years and above, the tax rate are as under.
In addition to the above income tax, surcharge and education cess are also applicable to all the assessee, surcharge is applicable only under following situation.
In addition to the above education cess of 4% is applicable to all the taxpayers irrespective of their income, it is important to note that surcharge is applicable at the rate of 15% only.
In case of tax on income earned from short term capital gain under section 111A and long term capital gain under section 112A, even if the total income is over and above 2 crores.
We discussed about the normal tax rates, now there are some special taxes also applicable to taxpayers, there are as under.
Tax on short term capital gain earned under section 111A of income tax act attracts tax rate 15%
Tax on long term capital gains earned under section 112A of income tax act attracts 10% over and above rupees 1 Lakh.
Tax on income tax earned from section 112 of income tax act attracts tax at the rate of 10% without indexation or 20% with indexation.
Dividend income will attract tax rate of 10% over and above rupees 10 lakh of dividend, also there is a rebate of rupees 12500 available to all the taxpayers under section 87A in case the total income is less than rupees 5 lakhs.
Now let’s discuss income tax rates applicable to companies.
In case of domestic companies opting section 115BA of income tax act, where MAT is applicable and certain deductions are not allowed. The tax rate is 25% if gross receipts in financial year 2017-18 of the company are less than rupees 400 crores or tax rate is 30% if the gross receipts in financial year 17-18 are more than rupees 400 crore.
In addition to above surcharge at the rate of 7% will be applicable if the total income of the company is more than 1 crore but less than 10 Crore and in case where the income is more than 10 crores surcharge would at the rate of 12%.
In addition to above education cess at the rate of 4% will be applicable to the company.
In case of domestic companies opting section 115BAA where MAT is not applicable and certain deduction are also not allowed income tax rate is 22%, surcharge applicable is at the rate of 10% and education cess applicable is at the rate of 4% in this case, surcharge is applicable to the company irrespective of the income earned by the company.
In case of domestic manufacturing companies opting section 115BAB of income tax act where MAT is not applicable and certain deductions are not allowed and incorporated on or after 1 October 2019, the applicable tax rate is 15% surcharge applicable is 10% and education is 10% and education cess applicable is 4%, even in this case surcharge is applicable to the company irrespective of the income earned by the company.
In case of a foreign company applicable tax rate is 40%, surcharge applicable is 2% in case income is earned between 1 crore to 10 crore and surcharge is applicable at the rate of 5% in case income is earned more than 10 crore, education cess at the rate of 4% shall be applicable to the foreign company as well.
For partnership firms and LLPs, the applicable tax rate would be 30% surcharge applicable would be 12% in case the total income of partnership firm is more than rupees 1 crore and education cess at the rate of 4% shall be applicable.
In case of co-operative societies when the total income is 0-10,000 the tax rate is 10% from 10,000-20,000 tax rate is 20% and over and above 20,000 tax rates applicable is 30%, surcharge at the rate of 12% is applicable to co-operative society if their total income is over and above rupees 1 Crore education cess at the rate of 4% shall anyways be applicable to co-operative societies also.
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