Economy |
February 04Income Tax Return: Settling The Old vs New Tax Regime
FM Minister Ms. Nirmala Sitharaman introduced the Union
Budget on 1st February 2020 with the aim to boost the Indian economy.
New vs. Old tax rates for Personal tax
|
Income Tax Slab for New FY 2020-21
|
New Tax Rate
|
Old Tax Rate
|
|
1) Upto
Rs 2.5 Lakhs
|
Exempt
|
Exempt
|
|
2) Rs
2.5- Rs 5 Lakhs
|
5%
|
5%
|
|
3) Rs
5- Rs 7.5 Lakhs
|
10%
|
20%
|
|
4) Rs
7.5 -Rs 10 Lakhs
|
15%
|
20%
|
|
5) Rs10- Rs12.5 Lakhs
|
20%
|
30%
|
|
6) Rs12.5-Rs 15 Lakhs
|
25%
|
30%
|
|
7) Above
Rs 15 Lakhs
|
30%
|
30%
|
If an individual wishes to avail the new tax rates as
announced by Budget 2020, he/ she will not be eligible to claim the following
tax benefits:
1) Leave
travel concession as contained in clause (5) of section 10;
2) House
rent allowance as contained in clause (13A) of section 10;
3) The
allowances as contained in clause (14) of section 10;
4) Standard
deduction of Rs. 50,000 u/s 16;
5) Employment/professional
tax deduction as contained in section 16;
6) Interest under section 24 in respect of
self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the
head income from house property for rented house shall not be allowed to be set
off under any other head and would be allowed to be carried forward as per
extant law);
7) Any
deduction under chapter VI-A ; [except 80CCD(2) - NPS Contribution by the employer
The tax rates have been reduced but with the new tax
rates one cannot avail around 70 tax exemptions and deductions out of more than
100 which were earlier can be availed. So,basically, one has to forego all of
these. However, it depends upon person to person which tax rates are beneficial
to go ahead with.
Let us understand this with the help of example;
Salary 6 lakh: The
one can invest 50 K in 80C, mediclaim, and others to get in 5 lakh range and
hence have to pay no income tax. (50K will be deducted in Standard Deduction)
Salary 7 lakh:
Either pay 32.5 K with new slab or invest 1.5 lakh under 80C and others to save
the tax (50K will be deducted in Standard Deduction)
Salary 8 lakh: Either
pay 40 K with new slab or invest 1.5 lakh under 80C and others, 50K in NPS to
save the tax, (50K will be deducted in Standard Deduction). Still have to pay 22.5K
for tax
Salary 9 lakh:
Either pay 60 K with new slab or invest 1.5 lakh under 80C and others, 50K in
NPS, (50K will be deducted in Standard Deduction), and still pay 42.5 K
Above calculations suggest that old tax rates with exemptions
and deductions is a better option for those individuals having higher income
bracket
If someone has a home loan, education loan, mediclaim for
family or parents, certain other deductions will be available in the later tax
slab. Hence, from this year now one has to calculate their total income as well
as deductions and have to decide whether they will invest money for a lock-in
period or can get better returns after paying income tax through new slab.
It is important to note that post the announcement of new
tax rates, Individual will have more cash in hand at his/her disposal at the
end of every month or year which was primarily the purpose of the government to
boost the consumption thereby taking India into the $5trillion GDP goal.
Benefits
of new tax rates
- Optional
for Individuals for opting old or new rates
- Lower
Income earners are benefitting from new tax rates
- National
Pension System (NPS) i.e. Deduction under 80CCD(2) will continue
- DDT
abolished
Source: https://www.indiabudget.gov.in/