All that you need to know about the new Income Tax Slabs 2020-21

The Finance Minister of India recently announced the Union Budget for the year 2020, wherein new tax slabs were introduced. While the new income tax slabs of India are aimed at simplifying systems, the changes may affect individuals and Hindu Undivided Family (HUF) who can claim lower tax rates if done without deductions under various sections.

The three categories of income tax slabs are:

1. Income tax slab for Individuals (Below 60 Years)

The new tax slabs for 2020-21 onward will be available for individual taxpayers. However, to avail the rates as per current income tax slabs, individuals will have to give up the exemptions and deductions that can still be availed at the old rates (as per income tax slabs 2019-20).

Income Tax SlabTax Rate
Up to ₹ 2.5 lakhNIL
₹ 2.5 lakh to ₹ 5 lakh5%
₹ 5 lakh to ₹ 7.5 lakh10%
₹ 7.5 lakh to ₹ 10 lakh15%
₹ 10 lakh to ₹ 12.5 lakh20%
₹ 12.5 lakh to ₹ 15 lakh25%
₹ 15 lakh and above30%

The list of exemptions and deductions that taxpayers will have to give up when choosing the new tax slabs are:

  • Leave Travel Allowance (LTA)
  • House Rent Allowance (HRA)
  • Conveyance
  • Daily expenses in the course of employment
  • Relocation allowance
  • Helper allowance
  • Children education allowance
  • Other special allowances [Section 10(14)]
  • Standard deduction
  • Professional tax
  • Interest on housing loan (Section 24)
  • Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJA)

Taxpayers can choose to opt for their preferred option on or before the due date of filing return of income for the Financial year 2020-21

2. Income tax slabs for Senior Citizens (Between 60 To 80 Years)

For senior citizens aged between 60 – 80 years, the new tax slabs are available and can be opted if individuals forgo their deductions. However, individuals can claim deductions under the old tax regime and get benefits for their investments under the income tax slabs for senior citizens.

Income Tax SlabTax Rate
Income up to ₹ 3,00,000NIL
Income from ₹ 3,00,000 – ₹ 5,00,0005%
Income from ₹ 5,00,000 – ₹ 10,00,00020%
Above ₹10,00,00030%

Note: An additional 4% Health & education cess will be applicable on the tax amount calculated as above.

3. Income tax slabs for Senior Citizens (Above 80 Years)

For senior citizens above the age of 80 years, the new tax slabs offer special benefits that can be opted.

Income Tax SlabTax Rate
Income up to ₹ 5,00,000NIL
Income from ₹ 5,00,000 – ₹ 10,00,00020%
Income more than ₹ 10,00,00030%

Note: An additional 4% Health & education cess will be applicable on the tax amount calculated as above.

Summary

The new tax slabs may benefit those who have not made any investment or have claims to deductions offered as per the old tax regime. However, individuals should make calculations as per the old and new tax regime to calculate which one benefits most to them and make an informed decision when filling out their tax filings.

Consider an example of a person aged 35. If he has a total income of 11,00,000 and has made investments of up to 1,50,000 under Section 80C and 50,000 under Section 80CCD, he can claim income tax deductions as follows:

ParticularsNew RegimeOld Regime
Total Income₹ 11,00,000₹ 11,00,000
Deductions under 80C₹ 0₹ 1,50,000
Standard Deduction (Medical & Travel Allowance)₹ 0₹ 50,000
Deductions under 80CCD₹ 0₹ 50,000
HRA deduction as per section 10(13A)₹ 0₹ 1,50,000
Taxable Income₹ 11,00,000₹ 7,00,000

So, the tax calculations will be:

Tax Payable As Per SlabsNew RegimeOld Regime
₹0 – ₹2,50,000₹ 0₹ 0
₹2,50,001 – ₹ 5,00,000₹ 12,500₹ 12,500
₹5,00,001 – ₹ 7,50,000₹ 25,000₹ 40,000
₹7,50,001 – ₹ 10,00,000₹ 37,500₹ 0
₹10,00,001 – ₹12,50,000₹ 20,000₹ 0
Total taxes₹ 95,000₹ 52,500

 

So when you are filing your taxes this year, make sure to opt for the right income tax slab option to gain tax savings and returns.

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