Income Tax Slabs and Rates in India for 2020-21: New Regime
Under the new Personal Income Tax Regime introduced in Budget 2020, individual taxpayers can avail the option of lower tax rates by not availing almost all generally claimed exemptions and deductions. The new tax rates are as under:
| Taxable Income Slab (INR) | New Tax Rate |
|---|
| Up to Rs. 2,50,000 | Nil |
| Rs. 2,50,001 to Rs 5,00,000 | 5% |
| Rs. 5,00,001 to Rs. 750,000 | 10% |
| 750,000 to 10,00,000 | 15% |
| 10,00,000 to 12,50,000 | 20% |
| 12,50,000 to 15,00,000 | 25% |
| 15,00,000 and above | 30% |
While opting for the new regime, only employer contribution to NPS or the National Pension System is allowed as a deduction. Some of the common exemptions that cannot be claimed are;
Leave Travel Allowance, Housing & certain allowances which are incurred wholly for the purpose of business, meal vouchers, etc.
Standard deduction of Rs 50,000 and professional tax
Interest paid on self-occupied house property loan
Section 80C deduction of Rs 150,000 for investment in LIC, PPF or Public Provident Fund, ELSS, EPF or Employee Provident Fund, principal repayment of home loan, etc
Section 80D deduction of Rs 25,000 for medical insurance premium
Other deductions under Chapter VIA, which include interest on savings account (80TTA), interest for educational loan repayment (80E), additional interest on housing loan (80EEA), donations (80G) etc
The new tax regime option can be availed on a year-on-year basis for taxpayers earning income other than business income.
Income Tax Slabs and Rates in India for 2020-21: Old regime
The Total Income derived as above after deductions and exemptions is subject to tax as per the income tax slabs. Individual taxpayers enjoy a basic exemption limit, wherein income upto such limit is not taxed. The basic exemption limit varies from taxpayer to taxpayer basis the age of the taxpayer. Income tax slabs and rates do not differ for women taxpayers. Below are the three categories of taxpayers with income tax slabs and rates for the financial year 2020-21.
Explained: Tax Calculator Components
1. Assessment Year: This means a period of 12 months (April to March) immediately succeeding the year of which income is being taxed/ assessed.
2. Salary:
a. HRA: House Rent Allowance is an allowance provided by an employer to an employee to cover the house rent expenditure. HRA is exempt subject to conditions and limits specified in the tax laws.
b. Leave Travel Assistance: LTA is an allowance provided by an employer to an employee for expenses incurred on travel within the country but does not include expenses incurred on boarding lodging etc. Exemption is available twice in a block of 4 calendar years. The quantum of expenditure allowed is subject to conditions specified under tax laws.
c. National Pension System: NPS is a defined contribution based pension scheme regulated by Pension Fund Regulatory and Development Authority (PFRDA). The NPS Corporate model allows employers and employees to contribute a certain portion of employee’s salary to NPS. The employer contribution is treated as a perquisite and added to the salary income of the employee. However, the employee is eligible to claim deduction of the employer contribution under section 80CCD (2) to an extent of 10% of the salary. The employee is eligible to claim his contribution as deduction under section 80C and is also eligible to an additional deduction under section 80CCD(1B) amounting to Rs 50,000/-. However, the additional deduction can only be availed if the overall limit of Rs 1,50,000/- specified under section 80CCE is exhausted.
3. House Property
a. Municipal Taxes: Any taxes paid to the municipal authorities are allowed as a deduction.
b. Interest on Loan: Interest paid on loan taken for acquisition and/or construction of house property. Such interest is allowed as a deduction while computing income from house property. Further, in case income from house property is a loss, the same can be adjusted against income from salary to an extent of Rs 200,000.
4. Employee Contribution to Provident Fund: The portion which is withheld from employee’s salary on a month on month basis and contributed to provident fund. The contribution amount is allowed as a deduction under section 80C (subject to an overall limit of Rs 150,000).
5. Contribution to Public Provident Fund: Any amount contributed by an employee towards his (including spouse or children) Public Provident Fund account qualifies as deduction under Section 80C (subject to an overall limit of Rs 150,000).
6. LIC Premium: Premium paid by an employee to keep life insurance policy in force. The premium paid qualifies as a deduction under Section 80C (subject to an overall limit of Rs 150,000). The tax benefit is given for premium paid for self, spouse and children of the taxpayer.
7.Tuition fee: This is tuition fee paid to any school, university in India for full time education of spouse or children. The tuition fee paid qualifies for deduction under Section 80C (subject to an overall limit of Rs 150,000).
8. ELSS: A tax payer can claim investment in an Equity Linked Savings Scheme of a mutual fund as a deduction under Section 80C (subject to an overall limit of Rs 150,000)
9. Taxable income/ total income – means income which is taxable after all exemptions and deductions available under the Act.
10. Standard deduction: The Finance Bill 2018 introduced standard deduction in lieu of transport allowance (which was exempt upto Rs 19,200 per annum) and medical reimbursement (which was tax fee up to Rs 15,000 per annum on production of bills). It is a flat deduction being provided to salaried individuals from their salary in order to meet their day to day expenses. Finance Bill 2019 proposes to increase this to INR 50,000.
11. Medical Insurance Premium: Any premium paid by an individual (including spouse and dependent children) for a medical insurance is allowed as a deduction under section 80D subject to a limit of Rs 25,000 (this is Rs 50,000 for all senior citizen taxpayers). Over and above the limits applicable for individual if he/she is paying medical insurance premium and/or medical expenses for parents then an additional deduction of Rs 25,000 is available (this is Rs 50,000 if parents are senior citizen). An individual can also claim Rs 5,000 under section 80D and within the overall limit as specified above for expenses incurred on preventive health check-up.
12. Income From Salary This includes salary paid to an employee in cash as well as the taxable perquisites made available to the employee. Employers issue a Form 16 and Form 12BA annually which states the salary and allowances and value of perquisites provided to the employee during the Financial Year.
13. Income From House Property As per Finance Bill, two residential house properties owned by a taxpayer shall not attract tax under the head income from house property.
14. Income From Capital Gains Profits or gain earned from conversion/ transfer of any capital asset (such as property, shares, securities etc. except for certain category of assets specifically excluded such as movable personal effects, etc.) owned by an individual classifies under the category of Income under the head Capital Gain, the gain so earned can be further classified into long term/ short term depending upon the period of holding of such assets so transferred/ sold/ converted.
15. Income from Other Sources Any income not classified under any other head of income such as salary, house property, business and profession and capital gain falls under the category of income from other sources. Such income primarily includes interest income earned from savings bank account, deposits etc. lottery income, dividend income etc.
Explained: Gross Total Income, Deductions, Exemptions, Form 16, 26AS
What is the difference between a financial year and assessment year?
Individuals earning income in a financial year are required to pay taxes computed as per the provisions of the Income Tax Act, 1961 (Act). Financial year is a period of 12 months commencing on 1 April and ending on 31 March of the subsequent calendar year. Income earned in a particular financial year is assessed to tax in the subsequent 12 months following the financial year, which is called an assessment year.
How to compute gross total income and taxable income
Depending upon the nature and source, income is classified into 5 heads under the provisions of the Act – (a) Income from Salaries; (b) Income from house property; (c) Profit or gains from business or profession; (d) Capital Gains; and (e) Income from other sources. While computing income under each head of income, a taxpayer is allowed certain exemptions and/or deductions, subject to the satisfaction of conditions. After computing income under each head, the aggregate of all the above heads of income result in Gross Total Income (GTI).
Income Tax Deductions and Exemptions
The Income Tax Act allows a taxpayer to claim deductions from his income. Additionally, certain kinds of income are exempt from tax and are therefore not considered while calculating income tax. (Text added)
Income Tax Deductions
The Act provides that if a taxpayer incurs certain specified expenditure or makes investments in certain specified instruments, the amount of expense/ investment may be allowed as a deduction from GTI to arrive at Total Income. This provides opportunity for taxpayers to plan taxes. Some of the common deductions available to taxpayers are under Section 80C, Section 80D, Section 80CCC, Section 80CCD, Section 80CCE, Section 80E, Section 80G of the Act amongst others. Here are a few popular income tax deductions which taxpayers usually avail:
Deduction under Section 80C
Under Section 80C of the Act, a taxpayer shall be eligible for deduction upto Rs 1.5 lakh in a financial year if investments are made in specified instruments or if certain specified expenses are incurred. Some common Section 80C investments and expenses are – premium paid towards life insurance, principal repaid in a home loan, investments made in National Savings Certificate (NSC), Public Provident Fund (PPF), Employees’ Provident Fund (PF), Equity Linked Savings Schemes (ELSS) or children tuition expenses, amongst others.
Deduction under Section 80CCC
Amount invested in any pension plan of a life insurance company qualifies for deduction under Section 80CCC up to a maximum limit of Rs 1.5 lakh per financial year. The premium paid should be to keep in force a contract for any annuity plan. Such annuity plans could be from any life insurance company including LIC and private insurers.
Deduction under Section 80CCD(1)
Contributions to National Pension System (NPS) are allowed as a deduction from GTI subject to a limit of Rs 1.50 lakh and 10% of the salary (basic salary, including dearness allowance, but excluding all other allowance and perquisites) or 20% of GTI in case of self-employed taxpayer.
Deduction under Section 80CCD(1B)
Contributions to NPS also allows a taxpayer an additional deduction of Rs 50,000. The deduction under Section 80CCD(1B) is over and above the deduction availed under Section 80CCD(1). In case a taxpayer exhausts the limit of Rs 1.5 lakhs available under Section 80CCE and makes additional contributions to NPS, such additional contributions shall be eligible for Rs 50,000 deduction from GTI come under section 80CCD(1B) of the Act.
Deduction under Section 80CCD(2)
If an employer contributes to NPS, the amount of contribution shall be eligible for deduction to an extent of 10 per cent of salary (basic salary plus dearness allowance). The deduction under this section is over and above the deduction under Section 80CCD(1) read with Section 80CCE and Section 80CCD(1B).
Deduction under Section 80CCE
Section 80CCE provides that a taxpayer can claim a maximum of Rs 1.5 lakh as deduction for specified investment/ expenses as stated under Section 80C, Section 80CCC and Section 80CCD(1) of the Act on an aggregate basis. For example, the maximum amount deductible for a tax payer investing in a pension plan (Section 80CCC), ELSS (Section 80C) and NPS (section 80CCD(1)) cannot exceed Rs 1.5 lakh in a financial year.
Deduction under Section 80D
Premium paid by any mode other than cash for a health insurance policy qualifies for deduction from gross income up to Rs 25,000 a year. For those who are 60 years or more, the maximum qualifying amount is Rs 50,000. The premium paid towards self and family members will be eligible for deduction. In case payments made for senior citizen parents, the limit is enhanced.
Deduction under Section 80DD
If a taxpayer has incurred expenses on medical treatment of a taxpayers’ dependant who is a person with a disability, a deduction may be availed for such expense to an extent of Rs 75,000 or Rs 1.25 lakhs depending upon severity of disability and satisfaction of other conditions.
Deduction under Section 80E
Interest paid on an educational loan qualifies for deduction under Section 80E of the Act. The loan can be availed for education of self, spouse or children. There are no limits prescribed under the Act but the deduction is subject to satisfaction of conditions and for a period of 8 years including the year in which the taxpayer starts paying the interest on loan.
Deduction under Section 80G
Taxpayers are eligible for deduction of donations made to specified institutions. The quantum of deduction varies depending upon the type of institution that the donation is being made for and varies from 100% to 50% of the amount donated and subject to certain other limits. No deduction can be claimed in respect of donation of an amount exceeding Rs 2,000 unless such sum is paid by any mode other than cash.
Income Tax Exemptions
Exemptions available to taxpayers – A taxpayer also enjoys certain exemptions under the provisions of the Act. A few illustrative exemptions are provided below, which could be availed by the taxpayer subject to the satisfaction of conditions as well as limits specified:
- House Rent Allowance
- Leave Travel Allowance
- Per-diem
- Gratuity
- Withdrawal from PF and PPF
- Withdrawal from NPS
- Leave encashment
- Agricultural income
New Regime
The FM introduced a simplified PIT regime, wherein taxpayers can avail lower tax rates by foregoing almost all of generally claimed exemptions and deductions. New taxable income slabs and tax rates were introduced with an objective of reducing the compliance burden of taxpayer as well as administrative burden of tax authorities. New tax rates are as under:
| Taxable Income Slab (INR) | New Tax Rate |
|---|
| Up to Rs. 2,50,000 | Nil |
| Rs. 2,50,001 to Rs 5,00,000 | 5% |
| Rs. 5,00,001 to Rs. 750,000 | 10% |
| 750,000 to 10,00,000 | 15% |
| 10,00,000 to 12,50,000 | 20% |
| 12,50,000 to 15,00,000 | 25% |
| 15,00,000 and above | 30% |
While opting for the new PIT regime, only employer contribution to National Pension System (‘NPS’) is allowed as a deduction and the following exemptions and deductions, amongst others, cannot be claimed:
- Housing, leave travel & certain allowance which are incurred wholly for the purpose of business, meal vouchers, etc
- Standard deduction of INR 50,000 and professional tax
- Interest paid on loan taken for self-occupied house property
- Section 80C deduction of INR 150,000 for investment in LIC, public provident fund, ELSS, employee provident fund, principal repayment of home loan, etc
- Section 80D deduction of INR 25,000 for medical insurance premium
- Other deductions under Chapter VIA, which includes interest for educational loan repayment (80E), donations (80G), additional interest on housing loan (80EEA), interest on savings account (80TTA), etc
The above option can be exercised on year on year basis for taxpayers earning income other than business income. However, for taxpayers having business income, such option can be changed only once in subsequent years.
Income Tax Slabs and Rates in India for 2019-20
The Total Income derived as above after deductions and exemptions is subject to tax as per the income tax slabs. Individual taxpayers enjoy a basic exemption limit, wherein income upto such limit is not taxed. The basic exemption limit varies from taxpayer to taxpayer basis the age of the taxpayer. Income tax slabs and rates do not differ for women taxpayers. Below are the three categories of taxpayers with income tax slabs and rates for the financial year 2019-20. It should be noted that these rates may change depending upon the Budget proposals to be presented on 5 July 2019.
Income Tax slabs and rates for resident or non-resident individual taxpayer
| Taxable Income | Tax Rate |
|---|
| Up to Rs. 2,50,000 | Nil |
| Rs. 2,50,001 to Rs 5,00,000 | 5% |
| Rs. 5,00,001 to Rs. 10,00,000 | 20% |
| Above Rs. 10,00,001 | 30% |
Income Tax slabs and rates for Senior Citizen
For a resident senior citizen who is 60 years or more at any time during the previous year but less than 80 years on the last day of the previous year.
| Taxable Income | Tax Rate |
|---|
| Up to Rs. 3,00,000 | Nil |
| Rs. 3,00,000 to Rs 5,00,000 | 5% |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
| Taxable Income | Tax Rate |
|---|
| Up to Rs. 5,00,000 | Nil |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
Income Tax rebate of Rs 12,500 for all Resident Taxpayers
In case of a taxpayer whose total income does not exceed Rs 5 lakhs, rebate under section 87A is available to an extent of Rs 12,500
Surcharge and Cess on Income Tax
If the total income of a taxpayer is more than Rs 50 lakh but less than Rs 1 crore, a Surcharge of 10 per cent of the amount of income-tax is levied. In case the total income exceeds Rs 1 crore, a Surcharge of 15 per cent of the amount of income-tax is levied. The Health and Education cess of 4 per cent will be levied on the amount of income tax plus surcharge (if applicable).
What is Form 26 AS and why is it needed
Further, it is recommended that the taxpayer review the Form 16 (provided by employer) and Form 26AS (which can be downloaded online from the income tax portal) prior to filing the ITR.
Form 26AS is a tax credit statement which documents the credit that is available to the taxpayer which can be availed in the ITR. The Form 26AS documents the details of TDS that has been deducted by payer of income and also details of Taxes Collected at Source (TCS) and Self-Assessment Tax.
What is Form 16
Form 16 is a certificate issued by the employer which depicts the gross income paid by the employer, break-up of income (taxable and exempt) and Taxes Deducted at Source (TDS).
Who has to file ITR and how to submit Income Tax Return
A taxpayer whose Total Income exceeds the basic exemption limit or satisfies certain other conditions (viz., holding foreign assets) are required to file Income Tax Returns (ITR). The format of ITR is prescribed by the tax authorities every year and failure to file ITR results prior to due date could result in interest, penalty and prosecution. ITR in most cases are required to be filed electronically and the ITR V obtained on filing the ITR is also not required to be sent to Centralized Processing Centre, if it is authorized using AADHAAR or digital signature (DSC). In case not authorized using AADHAAR or DSC, the ITR V needs to be physically sent to CPC in Bangalore within 120 days of filing the ITR. The ITR form to be used varies depending upon the sources of income, income threshold and foreign assets.
