Income Tax Slabs in India FY 2020-21

What You Need to Know About the proposed Income Tax Slabs for FY 2020-21

Income Tax Slabs & Rates for Different Financial Years

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 Rs. 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.

 

Income Tax Slab Rates for Individuals as per Budget 2020-21

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

Up to Rs. 2,50,000

Nil

From Rs. 2,50,001 to Rs. 5,00,000

5%

From Rs. 5,00,001 to Rs. 7,50,000

10%

From Rs. 7,50,001 to Rs. 10,00,000

15%

From Rs. 10,00,001 to Rs. 12,50,000

20%

From Rs. 12,50,001 to Rs. 15,00,000

25%

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

Up to Rs. 2,50,000

No tax

From Rs. 2,50,001 to Rs. 5,00,000

5%

From Rs. 5,00,001 to Rs. 10,00,000

20%

Above Rs. 10,00,000

30%

 

As per the current income tax slabs, taxation of income of resident individuals below 60 years is as follows:

Income up to Rs 2.5 lakh is exempt from tax 

5 per cent tax on income between Rs 250,001 to Rs 5 lakh

20 per cent tax on income between Rs 500,001 and Rs 10 lakh 

30 per cent tax on income above Rs 10 lakh.

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

Up to Rs. 3,00,000

Nil

Rs. 3,00,001 to Rs. 5,00,000

5%

Rs. 5,00,001 to Rs. 10,00,000

20%

Above Rs. 10,00,000

30%

 

As per the current income tax slabs, taxation of income of resident individuals above 60 years is as follows:

Income up to Rs 3 lakh is exempt from tax 

5 per cent tax on income between Rs 300,001 to Rs 5 lakh

20 per cent tax on income between Rs 500,001 and Rs 10 lakh 

30 per cent tax on income above Rs 10 lakh.

Income Tax Slab

Tax Rate for Individuals Above the Age of 80

Up to Rs. 5,00,000

Nil

Rs. 5,00,001 to Rs. 10,00,000

20%

Above Rs. 10,00,000

30%

Tax Rates for Senior Tax Payers between the age of 60 years to 80 years old

Income Tax Slab

Senior Citizens (between 60 years – 80 years)

Up to 3,00,000

Nil

 3,00,001 to 5,00,000

5% of income exceeding 3,00,000

 5,00,001 to 10,00,000

Tax Amount of 10,000 for the income up to 5,00,000

+ 20% of total income exceeding 5,00,000

Above 10,00,000

Tax Amount of 1,10,000for the income up to 10,00,000

+ 30% of total income exceeding 10,00,000

Surcharges to be levied for FY 2020-21

While calculating the tax payable, it’s important to remember the following points:

Surcharge and Cess

The income tax rates mentioned above are for the total income earned in a year. Following this, surcharge and cess are added to the total tax payable. The surcharge is applicable on the basis of income thresholds as follows:

For income above Rs. 50 lakh and up to Rs. 1 crore10% surcharge
For income above Rs. 1 crore and up to Rs. 2 crore15% surcharge
For income above Rs. 2 crore and up to Rs. 5 crore25% surcharge
For income above Rs. 5 crore37% surcharge

Additionally, a health and education cess of 4% is applicable on the income tax payable, including surcharge.

In light of the new tax regime being introduced, it’s important for individuals to calculate their income, their deductions and the amount of tax they’re currently paying. Then, they should calculate their tax payable under the new regime, which excludes deductions and exclusions, in order to better understand which regime suits them and their personal finances better.

While the budget proposals provide for a new regime of taxation for Individuals and HUFs to opt for lower tax brackets without claiming any exemptions/deductions, it would certainly be imperative for the working age group to continue to focus on savings for their future needs, namely children’s future and maintaining standards of living post retirement, among others. Also, they will need to ensure they protect their families against any health or life eventualities, especially as our household borrowings increase and the shield of joint family system is no longer available. Such savings can be achieved along with tax benefits which are available under various sections of the Income-tax law under the existing tax regime.

Frequently Asked Questions (FAQ)

✅  What is the meaning of Income Tax Slab?

Governments need money to fund education, welfare systems, and keep infrastructure projects like airports, railways, etc running. Governments do this by earning revenue from tax imposed on the income of its citizens.

Not everyone pays the same rate of tax on the income they earn, which is why there are different IT slabs. An income tax slab is simply a rate of tax individuals pay depending on the amount of income they earn. These tax slabs can change according to government budgets.

According India’s Budget for FY 2020-21, the new tax regime has the following slabs irrespective of age-

Upto Rs 2.5 lakh incomeYou pay no tax
Rs 2.5 lakh to 5 lakh incomeYou pay 5% tax ( Less Rs 12,500 under Section 87 A)
Rs 5 lakh to 7 .5 lakh incomeYou pay 10% tax
Rs 7.5 lakh to 10 lakh incomeYou pay 15% tax
Rs 10 lakh to 12.5 lakh incomeYou pay 20% tax
Rs 12.5 lakh to 15 lakh incomeYou pay 25% tax
Rs 15 lakh and aboveYou pay 30% tax

 

There may be additional surcharges you need to pay, depending on the central government budget provisions. These new income tax slabs which forego the taxpayers’ right to any deductions coexist with the old income tax rates with deductions and the individual has the right to choose between the two.

✅ How much income tax do I need to pay on Rs 10 lakh income?

Income tax is imposed not only on income from salary but also from other sources like business profits, capital gains, house rents etc. Tax slabs vary according to the income and age of the taxpayer.

From this year, taxpayers have the option to pay income tax under the old regime by availing the requisite deductions or going for the new tax regime by waiving any applicable deductions. Accordingly, the new tax slabs (FY 2020-21) for those aged below 60 are-

Income Earned

Tax Rate You Pay

Upto Rs 2, 50,000

NIL

Above Rs 2,50,000 to 500,000

5% (Less Rs 12,500 u/s 87A)

Above Rs 500,000 to 750,000

10%

Above Rs 750,000 to 10,00,000

15%

Above Rs 10,00,000 to 12,50,000

20%

Above Rs 12,50,000 to 15,00,000

25%

More than Rs 15,00,000

30%

 

The old tax regime had the following slabs for those aged below 60:

Income Earned

Tax Rate You Pay

Upto Rs 2, 50,000

NIL

Above Rs 2,50,000 to 500,000

5% (Less Rs 12,500 u/s 87A)

Above Rs 500,000 to 750,000

20%

Above Rs 750,000 to 10,00,000

20%

Above Rs 10,00,000 to 12,50,000

30%

Above Rs 12,50,000 to 15,00,000

30%

More than Rs 15,00,000

30%

The new tax regime is more simplified. However, you have to give up exemptions such as 80C, leave, conveyance and travel allowances, standard deduction, etc. The total tax payable on taxable income of Rs 10 lakh, not factoring deductions in both cases, is Rs 78,000 in the new regime and about Rs 1,06,000 under the old slab rates. Rebate u/s 87 is available only if your net taxable income is less than 5 lakhs.

✅  What are the different tax slab rates for different age groups?

The government of India imposes tax on essentially three broad categories of individuals. The first being those aged below 60 years of age, the second group including those aged above 60 but below 80 years known as senior citizens and the third category comprising those above 80 years of age, known as super senior citizens. Tax slab rates for the three categories of individuals as per Financial Year 2019-20 are tabulated below.

For those aged below 60:

Income Earned

Tax Rate You Pay

Upto Rs 2, 50,000

NIL

Above Rs 2,50,000 to 500,000

5% of total income more than Rs 2,50,000

Above Rs 500,000 to 10,00,000

Rs 12,500 + 20% of total income more than Rs 500,000

More than Rs 10,00,000

1,12,500 + 30% of total income more than 10,00,000

 

For those aged between 60 to 80:

Income Earned

Tax Rate You Pay

Upto Rs 300,000

NIL

Above Rs 300,000 to 500,000

5%

Above Rs 500,000 to 10,00,000

20%

More than Rs 10,00,000

30%

 

For those aged above 80

Income Earned

Tax Rate You Pay

Upto Rs 500,000

NIL

Above Rs 500,000 to 10,00,000

20%

More than Rs 10,00,000

30%

 

To all taxable incomes calculated in any of the categories mentioned above, a 4 per cent health and education cess has to be added. Further, if the taxable income crosses Rs 50 lakh but is within Rs 1 crore, there is a surcharge of 10 per cent on it. However, if it is more than Rs 1 crore, the surcharge is 15 per cent. Both surcharges are applicable irrespective of which age group one belongs to.

✅  Is TDS mandatory for salary?

Yes, if it exceeds a certain threshold. Section 192 requires that every employer who pays his workers their salaries is required to deduct tax at source (TDS) if their salaries cross the basic exemption limit.

There is no fixed way in which employers deduct tax at source from their employees’ salaries. The tax liability will depend on which tax slab the employee falls under and also what the average rate of income tax is. Average income tax rate is the total tax liability divided by the total income of the employee. If the employee has invested in tax saving instruments, his total tax liability will reduce. Therefore, there is no uniform TDS applicable for all employees.

What the employee receives after deducting the TDS from his / her salary is the net salary. The average income tax rate can remain constant if the salary as well as the tax saving instruments he invests in remain the same. The rate at which TDS is deducted can also be revised from time to time and is also dependent on such factors as the employee receiving an increment or bonus or the employee showing tax-saving investments not disclosed earlier. In case of lower deduction, the additional TDS can be deducted in the future months. Likewise, if a higher than required TDS has been deducted, he can lower the TDS deducted and thus average out the TDS he/she is paying.

✅  Where can I calculate my income tax?

You can calculate your income tax manually if you are a numbers buff and know the prevailing tax slabs and rates and how they work. The manual offline method can be a bit tricky. Alternatively, if you are not comfortable with this method, there are a number of online calculators that do the number crunching for you and let you know how much your tax liability is.

You can also skip the manual hassle of estimating your income tax by calculating your taxable income in a jiffy by using the HDFC Life tax calculator . All you need to is enter your details like age and annual income, fill in details of investments in insurance plans, insurance premia paid during the year, interest paid on loans etc, in clearly defined columns. Once you have entered these details, your income tax summary along with your taxable income is generated for you. It shows you the next tax payable, as also the amounts you can save under section 80 D and 80 C.

Disclaimer: The above-mentioned tax rates and tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.

ARN: ED/10/19/16121

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