Income Tax Slabs FY 2020-21 (AY 2021-22)
Under New Tax Regime: Income Tax Slabs
Budget 2020 announced recently comes with sweeping changes to the Personal Income Tax Slabs. The tax rates have been slashed and the slabs revised as per the new tax regime. However, under the new tax system 70 exemptions available previously will be removed, including Standard Deduction and House Rent Allowance (HRA). Individuals will have the option to choose between existing tax regime or the newly introduced tax regime. The new tax regime will provide relief to the tax payers in terms of reduced tax rate, increasing the take home amount. But the fact that it does not provide incentive to invest is one of the major drawbacks under the newly introduced tax norms, in my opinion. Popular Income Tax Deductions U/S 80C, 80D, 80CCD (1b) will no longer be available under the New Tax regime.
However, Tax Rebate U/S 87A is still applicable for Individuals with Taxable Income up to Rs 5,00,000/-.
Health & Education Cess and Surcharge (if applicable) rates remain same as the existing tax regime.
Under Existing Tax Regime: Income Tax Slabs
Income Tax Slab Rates under the existing tax regime (availing income tax deductions & exemptions) remain unaltered in the Union Budget 2020 for the Financial Year 2020-21. Tax Rebate U/S 87A up to maximum of Rs 12,500/- is available to the Individuals with income up to Rs 5 lacs. Individuals with Taxable Income up to Rs 5 lacs will enjoy 100% tax rebate, resulting in zero tax liability. Income Tax Slabs in the chart above shows the latest Tax rates applicable for the Financial Year 2020-2021 (Assessment Year 2021-22). Health & Education Cess is levied @ 4% on Income Tax payable. Standard Deduction of Rs 50,000/- is still available under the existing tax regime. Higher Surcharge is to be levied on income slabs of Rs 2-5 crore & above Rs 5 crore.
#Tax Deductions or Tax Breaks under Section 80C, 80D, 80CCD (1b), exemption on HRA will be available to Individuals opting for the existing Tax Regime, in accordance with Chapter VI-A of the Income Tax Act.
#Health and Education Cess of 4% is levied on Total Income Tax and on Surcharge if applicable.
#Surcharge of 10% will be levied on the Total Income between Rs 50 lacs to Rs 1 crore.
#In case of Total Income above Rs 1 crore, Surcharge will be levied @ 15%.
#Surcharge of 25% is to be levied on the Total Income between Rs 2-5 crore. Effective Tax Rate comes to 39%.
#In case of Total Income exceeds Rs 5 crore, Surcharge will be levied @ 37.5%. Effective Tax Rate comes to 42.7%.
Standard Deduction for Salaried Individuals (Under Existing Tax Regime)
Standard Deduction of Rs 50,000/- is available to Individuals for the Financial Year 2020-21. The deduction was introduced in the Financial Year 2018-19 in lieu of Conveyance Allowance and Medical Reimbursement.
Standard Deduction is to be deducted from the Salary Income, prior to the calculation of Taxable Income.
Taxable Income = Gross Total Income – Deductions (Standard Deduction + Deduction Allowed Under Chapter VI-A of Income Tax Act)
Gross Total Income
Gross Total Income includes the aggregate income under the 5 heads of income, namely, Salary Income, Income from House Property, Income from Business or Profession, Capital Gains and Income from Other Sources.
Taxable Income is derived from the Gross Total Income after subtracting eligible Deductions (Standard Deduction & Deductions allowed U/S 80C to U).
Tax Rebate under Section 87A
Individuals with Taxable Income up to Rs 5,00,000/- (5 lacs) will be eligible for tax benefit up to Rs 12,500/-. This implies that no tax is payable on taxable income up to 5 lacs. Tax Rebate U/S 87A is not available if Taxable Income exceeds Rs 5,00,000/-. Individuals may also reduce their Tax Liability by availing Deductions available under Chapter VI-A of the Income Tax Act (U/S 80C,D,E etc). Tax Deductions available for the Financial Year 2020-21 (Assessment Year 2021-22) will be updated shortly.
Income Tax Slabs for Senior & Super Senior Citizens
Individual Residents in the age bracket of 60-80 years (Senior Citizen) Income up to Rs 3,00,000/- (Rs 3 lacs) is exempted from Tax. Tax Payer has the option to choose between the existing and new Tax Regime. For Income above the exempted limit, tax would be applicable in accordance to the tax regime opted by an Individual. However, if the taxable income is below Rs 5 lacs, Rebate under 87A is available.
Individual Residents above 80 yrs of age (Super Senior Citizens), Income up to Rs 5,00,000/- (5 lacs) is exempted from Tax. Individual may opt for existing Tax or the new Tax Regime. For Income above the exemption limit, tax rate will be applicable as per the existing or new slab, as opted by the Individual. New Tax regime is also applicable on Super Senior Citizens.
This article is for informational purpose only. Readers are advised to research further to have more clarity on the topic. It is very important to do your own analysis and consult your Tax Advisor before arriving at any conclusion.