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Finance Minister in the Budget for financial year 2020-21 and assessment year 2021-22 has revised Income Tax rates and slabs for individual salaried and self employed taxpayers. Main highlights of the changes are:
- Option to the taxpayer choose between old income tax rate and slabs and the new ones
- New tax slabs offer reduction in applicable tax rate from 20% to 10% and from 30% to 20% in some cases (details in table below)
- In case the tax payer opts for new slabs and rates, no exemption or deduction can be claimed such as those on account of house rent allowance (HRA) investments, LIC premium, school fees, mediclaim etc. (see list detailed list of withdrawn exemptions below)
The tax slabs as per Income Tax Regime is as follows:
Change in Income Tax Slabs in Budget 2020-21
|Income range per annum||New Slabs for FY 2020-21, AY 2021-22||Old Slabs, mandatory upto FY 2019-20 and optional from FY2020-21|
|Up to Rs. 2.5 lakhs||No Tax||No tax|
|Above Rs. 2.5 lakhs to Rs. 5 lakhs||5%||5%|
|Above Rs. 5 lakhs to Rs. 7.5 lakhs||10%||20%|
|Above Rs. 7.5 lakhs to Rs. 10 lakhs||15%||20%|
|Above Rs. 10 lakhs to Rs. 12.5 lakhs||20%||30%|
|Above Rs. 12.5 lakhs to Rs. 15 lakhs||25%||30%|
|Above Rs. 15 lakhs||30%||30%|
Cess at 4% of tax applicable in all cases. Surcharge at 10% for income above Rs. 50 lakhs and at 15% for income above Rs. 1 crore.
The total reduction in tax liability will range from Rs. 25000 for a person earning Rs. 7.5 lakhs per annum to Rs. 75,000 for a person earning Rs 15 lakhs or more per annum under the new tax slabs. However, the actual savings will be lower if one were to include the impact of fore-going exemptions under the new tax regime.
List of Main Income Tax Exemptions and Deductions Withdrawn under New Tax Regime Starting FY 2021-22
|Section||Description||Maximum Annual Limit|
|10||House Rent Allowance Exemption||Least of following shall be exempt.|
|80C||Deductions under section 80C (LIC, PPF, ULIP, tution fee, HL principal repayment, etc.)||Rs. 150,000/-|
|80D||Deductions under section 80D (Medi-Claim)||Rs. 50,000|
|80E||Deductions under section 80E (Interest on loan for higher education)||Rs. 1,50,000|
|80G||Deductions under section 80G (Donation)||Out of Four Categories of Deduction, Deductions under 1st and 2nd Category is allowed 100%, whereas under 3rd and 4th category it is restricted to10% of Adjusted Gross Total Income|
|80EEA||Deductions under section 80EEA (interest on loan for residential house property)||Rs. 1,50,000|
|80TTA/ TTB||Deductions under section 80TTA/TTB (interest on FD from PO and banks)||Rs. 10,000|
Under this regime, 70 deductions exemptions from the old Income Tax Act have been removed. The new regime has been formed with the objective of easing the filing of the Income-tax return for the individuals so that they do not require the help of professionals. It is estimated that Rs. 40,000 crore per annum of revenue will be foregone as per the new Income Tax Regime for individuals.
As per the Hon’ble Finance Minister, the new tax regime, in most cases, will also provide significant relief in the total tax payable for the individuals as compared to the old income tax regime.