What You Need to Know About the proposed Income Tax Slabs for FY 2020-21
On Saturday, 1st February 2020, India’s Finance Minister, Ms Nirmala Sitharaman, presented India’s Union Budget in the parliament. Among other things, the Finance Minister made a few changes to the income tax slabs for the upcoming financial year, 2020-2021. The Budget proposals will be effective once it receives the assent of the President of India. If you’re wondering how proposed change in the income tax slabs impacts you and how much tax you will have to pay under the new regime, here’s everything you need to know.
What Is an Income Tax Slab?
The amount of income tax an individual is required to pay will depend on how much they earn. Essentially, taxpayers are broken down into groups based on how much annual income they earn. Based on this, the different income groups are taxed at different rates. This is done keeping in mind the fact that those who earn a lower income will find it more difficult to pay their taxes.
Up until the financial year 2019-2020, there were 4 basic tax groups or slabs:
1 | Individuals earning up to | 2,50,000 |
2 | Individuals earning between | Rs. 2,50,001 and Rs. 5,00,000 |
3 | Individuals earning between | Rs. 5,00,001 and Rs. 10,00,000 |
4 | Individuals earning over | Rs. 10,00,0001 |
The four income tax slabs were then applied to 3 different age groups –
individuals below the age of 60,
senior citizens between the ages of 60 and 79,
and super senior citizens above of the age 80 or more.
What are the Tax Rates for Individuals According to the New Budget Proposal?
In the new budget, the Finance Minister outlined the fact that income tax rates would be lowered and the tax slabs broken down further. The new income tax rates are as follows:
Income Tax Slab
Tax Rate for Individuals and HUF’s
SN | Income | Tax Rate |
1 | Up to Rs. 2,50,000 | 0 |
2 | Up to Rs. 2,50,000 | 5% |
3 | From Rs. 5,00,001 to Rs. 7,50,000 | 10% |
4 | From Rs. 7,50,001 to Rs. 10,00,000 | 15% |
5 | From Rs. 10,00,001 to Rs. 12,50,000 | 20% |
6 | From Rs. 12,50,001 to Rs. 15,00,000 | 25% |
7 | Above Rs. 15,00,000 | 30% |
It’s important to note that these new tax rates are only applicable to those individuals who do not wish to avail specified exemptions or deductions. It means that these lower tax rates will be applied to their total income directly without allowing any benefit of deductions and exemptions. The deductions and exemptions that will not be allowed under this regime include:
1.) Standard deduction from salary and profession tax
2.) House Rent Allowance
3.) Housing Loan Interest
4.) Leave Travel Allowance
5.) Deductions under Chapter VIA of the Income tax Act, 1961 such section 80C (life insurance premium), section 80CCC (pension premium), 80D (health insurance premium), 80TTA (bank interest), etc.
However, individuals who would like to continue to claim applicable exclusions and deductions may do so, but they will have to follow the existing tax rates, which are as follows:
Income Tax Slab
Tax Rate for Individuals Below the Age of 60
SN | Income | Tax Rate |
1 | Up to Rs. 2,50,000 | 0% |
2 | From Rs. 2,50,001 to Rs. 5,00,000 | 5% |
3 | From Rs. 5,00,001 to Rs. 10,00,000 | 20% |
4 | Above Rs. 10,00,000 | 30% |
As per the Budget proposals, under the existing regime, tax rates for senior citizens and super senior citizens remain unchanged. Here’s a look at what the current tax rates are for these two age groups:
Income Tax Slab
Tax Rate for Individuals Above the Age of 60
SN | Income | Tax Rate |
1 | Up to Rs. 3,00,000 | 0% |
2 | From Rs. 3,00,001 to Rs. 5,00,000 | 5% |
3 | From Rs. 5,00,001 to Rs. 10,00,000 | 20% |
4 | Above Rs. 10,00,000 | 30% |
Income Tax Slab
Tax Rate for Individuals Above the Age of 80
SN | Income | Tax Rate |
1 | Up to Rs. 5,00,000 | 0% |
2 | From Rs. 5,00,001 to Rs. 10,00,000 | 20% |
3 | Above Rs. 10,00,000 | 30% |
