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What is the income tax slab for FY 2020-21?

What is the income tax slab for FY 2020-21?

What is the income tax slab for FY 2020-21?
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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.

Tax Rate for Individual Taxpayers for FY 2020-21 (AY 2021-22)

Individual taxpayers in India can be classified as the following, for the purpose of income tax:

  • Individuals less than 60 years of age (Residents & Non-residents)
  • Individuals between 60 and 80 years of age or Senior Citizens (Residents)
  • Individuals above 80 years of age or Super Senior Citizens (Residents)
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.

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

  • What authority decides the Income Tax slabs and can they change?

    Income Tax slabs are introduced in the parliament budget every year and may be changed every year.

  • Are there separate tax slabs for males and females?

    No, the income tax slabs are the same for males and females.

  • Should I disclose all my income in the return even if it is exempt?

    Yes, income from every source including exempt income must be disclosed at the time of filing a return.

  • Is my income taxable if I am an agriculturist?

    Agricultural income is exempt from income tax. However, any kind of non-agricultural income earned by any individual is taxable.

  • Is the income tax filing due date same for all taxpayers?

    No, the due date for filing income tax return may not be the same for Individuals & HUF and companies.

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