New Income Tax Slab with is released in budget 2020. It is simplified tax regime with reduced tax rates for annual income up to 15 Lakh. The new condition is imposed along with new tax slab that you cannot take benefits of tax deduction and exemptions. However, option is given to use old tax slab with applicable deduction and exemptions. This means you can either opt for new reduced tax slab without deductions or continue using old tax slab with deductions. Both the tax system co-exists. New tax regime comes under section 115BAC. Let’s take a look at Income Tax Slab & Tax Rate newly introduced for FY 2020-21.
Income Tax Slab & Tax Rate for FY 2020-21 (AY 2021-22)
As per new income tax slab you need not to pay any tax for the annual income up to Rs.5 Lakh. If your annual income is between 5 Lakh to 7.5 Lakh applicable tax rate is 10%. On annual income level between 7.5 lakh to 10 Lakh tax rate would be 15%. On income level between 10 Lakh to 12.5 Lakh applicable tax rate is 20%. For annual income between 12.5 Lakh to 15 Lakh tax rate is 25% and above 15 Lakh annual income tax rate is 30%.
A new Income Tax Slab & Tax Rate for FY 2020-21 (AY 2021-22) is given below.
Income Tax Slab FY 2020-21
|Yearly Income||Tax Rate%|
|Up to 2.5 Lakh||0|
|2.5 Lakh to 5 Lakh||5%|
|5 Lakh to 7.5 Lakh||10%|
|7.5 Lakh to 10 Lakh||15%|
|10 Lakh to 12.5 Lakh||20%|
|12.5 Lakh to 15 Lakh||25%|
|Above 15 Lakh||30%|
You get a choice to stick with the old slabs or opt for the new slabs. However, if you opt for the new slabs, you will have to let go of various deductions.
Few conditions still remain same for old and new tax slab structures.
- Rebate of Rs.12500 for taxable income up to 5 Lakh.
- Surcharge of 10% on income tax if the taxable income is between 50 Lakh to 1 Cr.
- Surcharge of 15% on income tax if the taxable income is between 1 Cr to 2 Cr.
- Surcharge of 25% on income tax if the taxable income is between 2 Cr to 5 Cr.
- Surcharge of 37% on income tax if the taxable income is above 5 Cr.
- Cess at 4% applicable over income tax and surcharge.
If you want to adopt new tax structure you need to forgo 70 out of 100 deductions available to tax payer in the old tax regime. Some of them are given below.
List of Deductions removed for New Tax Slab
- Standard deduction of Rs 50,000 (only for the salaried)
- 5 Lakh applicable under Section 80C (Life Insurance premium, PPF, EPF, ELSS, 5-year FDs, etc)
- Home loan interest payment benefit under Section 24 up to 2 Lakh.
- Rs 25,000 for health insurance premium payment under Section 80 D.
- Rs 50,000 under Section 80CCD(1B) for investment in NPS
- Interest amount on education loan under Section 80E
- No benefit for the section 80DD for disability & treatment.
- Section 80G benefits for the donations made to the charitable organizations.
- Benefit of Leave Travel Allowance (LTA) under Section 10(5)
- Benefit of House Rent Allowance (HRA) under Section 10(13)
List of Deductions still allowed for New Tax Slab
- Death-cum-retirement benefit
- Commutations of pensions
- Leave encashment on retirement
- Amount received on VRS up to Rs 5 lakh
- Employee Provident Fund money(EPF)
Which Tax Slab is better? Old or New
Well, as you have option to select old vs new tax slab you need to calculate your tax liability and decide which tax slab is better.
In order to help you I am here with sample calculation for comparison between two tax slab. I have considered the case where individual is taking full benefit of section 80C, 80D and standard deduction.
Impact of cess and surcharge is not considered in above example.
So, from above example you can say that if you save 1.5 Lakh in 80C and take benefit of standard deduction and 80D you need not to pay any tax up to income of 7 Lakh. Up to annual income of 13 Lakh tax liability in old tax regime is low compared to new tax regime. If individual claims benefit of home loan interest the tax liability will further reduce.