Income Tax is charged at the rates prescribed for the year by the annual Finance Act. Income Tax is levied on individuals on the basis of slab system and they have to pay taxes as per different slab rates. Such slab rates undergo some change during every budget. Income Tax rates are charged on the total income earned during the previous year.
The Union budget of year 2020 proposed a new tax regime in addition to existing tax regime. The new tax regime is an optional scheme. It means now taxpayers have two option. They can opt for any scheme from new or existing depending which best suits from the point of view of tax planning.
Good and Bad of Union Budget 2020 : Detail summary
There are different type of categories of individual tax payers.
Category 1
The Income tax slab rate of Individual Residents below the age of 60 years throughout the relevant previous year and Non-residents (any age) is :
| Income Tax slab | Tax rate under existing scheme | Tax rate under new scheme |
| Up to 2.5 lakh | Nil | Nil |
| 2.5-5 lakh | 5% | 5% |
| 5-7.5 lakh | 20% | 10% |
| 7.5-10 lakh | 20% | 15% |
| 10-12.5 lakh | 30% | 20% |
| 12.5-15 lakh | 30% | 25% |
| Above 15 lakh | 30% | 30% |
Penalty for not showing the income in Income Tax Return
The New Tax Regime has proposed lower Income-Tax rates, for income segments up to Rs 15 lakh. There is a major condition in order to opt for new Income Tax rates regime. The condition is that assessee have to give up around 70 exemptions and deductions available under various provisions of the Income-Tax Act, 1961.
Here is the example how much resident individual aged below 60 years can save Income Tax when he does not have any exemption or deduction:
| Particular | Existing tax regime | New tax regime |
| 0 – 250000 | Nil | Nil |
| 250000 – 500000 | 12500 | 12500 |
| 500000 – 750000 | 50000 | 25000 |
| 750000 – 1000000 | 50000 | 37500 |
| 1000000 – 1250000 | 75000 | 50000 |
| 1250000 – 1500000 | 75000 | 62500 |
| Total | 262500 | 187500 |
In this scenario, Tax saving is 75000 approx. on opting the new tax scheme. In addition to Income Tax, following are also charged:
- Surcharge: – 10% of Income Tax where total income exceeds Rs. 50,00,000 or 15% of Income Tax where total income exceeds Rs. 1,00,00,000.
- Health and Education cess: – 4% of Income Tax and surcharge.
Advance Tax liability : Calculation, Due dates, Interest
Important points to remember while opting for the new tax regime:
- Option to be exercised on or before the due date of filing return of income for AY 2021-22.
- Those taxpayer who doesn’t have business income will have yearly option regarding new tax regime. In case of a taxpayer having business income, he can choose the option one time. If the taxpayer withdraws the option, he will never be able to opt-in the option again.
- Those people who want to invest their money in life insurance, health insurance, etc and want to avail the deduction then existing regime will be helpful for them, those who are willing to give up the deduction then new regime will be beneficial as explained above.
- In New Income Tax regime, Tax slab rates are same for all individuals including senior citizens and Very Senior citizens.
- These rates are not applicable for any income with special rate.
Everything about Section 194N- TDS on Cash Withdrawal
Category 2:- (senior citizens)
Residents who are of the age of 60 years or more but below the age of 80 years at any time during the relevant previous year. There is no separate new slab rates for Senior Citizens. They can either go for new slab rates as discussed above or go for the existing slab rate which is as follows:
| Income Tax slab | Tax rate for FY 2020-21 |
| 0-300000 | Nil |
| 300000-500000 | 5% |
| 500000-1000000 | 20% |
| Above 1000000 | 30% |
Summary of Section 194M- TDS on payment to resident contractors and professionals
Category 3:-(Very Seniors citizens)
Residents who are of the age of 80 years or more at any time during the relevant previous year. There is also no separate new slab rates for Very Senior Citizens. They can either go for new slab rates as discussed above or go for the existing slab rate which is as follows:
| Income Tax slab | Tax rate for FY 2020-21 |
| 0- 500000 | Nil |
| 500000-1000000 | 20% |
| Above 1000000 | 30% |
A Taxpayer should compares his tax liability under both the regimes, that is existing rates v/s new rates. He can select whichever brings tax saving for him. He has the option to change the scheme every year.
Income Tax Forum
The Income Tax department has provided the Tax Calculator for Resident Individuals FY 2020-21 to compare the Income Tax under existing and new Regime:
https://www.incometaxindiaefiling.gov.in /Tax_Calculator/index.html?lang=eng
The author of above article is Shruti Jain.
