Union Budget 2020-21 is released by Finance Minister Nirmala Sitharaman. Income Tax Slab for FY 2020-21 is revised in new budget. Now you need not to pay tax for income up to 5 Lakh. Additionally tax percentage is also changed. At first instance it seems to be very good budget for middle class. But, it’s not. It is give and take budget. Where two parallel tax structure is proposed.
- Continue old Income Tax Slab for FY 2020-21 – No tax slab change & No change in exemption. You can enjoy tax saving by investing in various tax saving instruments.
- Adopt new income tax slab where income tax rate is lower & flat. In this case, you cannot claim any tax exemption such as 80C,80D etc.
A choice of selecting new or old tax regime is given to tax payer. Keeping Tax Payer in Confusion State 🙁
Apart from Income Tax Slab few more changes are proposed in the union budget of fiscal year 2020-21. I have tried to review budget 2020-21. Here is a detail of Key Income Tax Benefits and changes announced in budget 2020-21 along with review.
In this article, you will learn
Budget 2020-21 – Income Tax Slabs
# New Income Tax Slab FY 2020-21 – Key Announcements
- Introduction of new simplified personal tax regime.
- No income tax for income up to Rs 5 lakh
- 10% income tax for earning between Rs 5 lakh to Rs 7.5 lakh against 20% earlier
- 15% income tax for earning between Rs 7.5-10 lakh against 20% earlier
- 20% income tax for earning between Rs 10-12.5 lakh against 30% earlier
- 25% income tax for earning between Rs 12.5-15 lakh against 30% earlier
- Income above Rs 15 lakh to continue to pay tax at 30%
- New income tax scheme is optional, without exemptions
- Dividend Distribution Tax (DDT) abolished, shifted to individuals instead of companies
- IT Act will be amended to allow faceless appeals.
- 5 Lakh benefit on interest paid on affordable housing to be continued up to March 2021
- To launch new direct tax dispute settlement scheme; interest, penalty waived till March 31, 2020
Income Tax Slab Rate for FY 2020-21
As per above announcement New Income Tax Slab for FY 2020-21 is given below.
The new income tax regime is optional and taxpayer can either continue old exemption and deduction or opt for new reduce tax rate. In new tax regime total seven different tax slabs are defined.
As per new proposal people with income between 5 lakh to 7.5 lakh need to pay tax with rate of 10%; between 7.5 lakh to 10 lakh 15% tax rate is applicable; between 10 lakh to 12.5 lakh 20%; between 12.5 to 15 lakh 25% and above 15 lakh 30% tax rate is applicable.
No Exemption & No Deductions
One important point to note here is this new tax slab rate is available only if you are ready to lose benefit of all tax exemption and deductions.
This deduction includes standard deduction, Section 80C, Section 80 D, LTA, HRA, interest on housing loan on self-occupied property and other deductions.
If you don’t want to lose benefits of exemptions and deductions, you can continue using old tax rate with applicable deductions & exemptions.
This means now you need to check which tax rate will give you more benefit –
- Old Tax rate with deduction and exemptions
- New Tax rate without deductions and exemptions
The benefit differs from case to case. Salaried people can change/switch between old tax rate and new tax rate. But, in case of business income tax rate regime change/switch from old to new and new to old is restricted.
Budget 2020-21 – Review
On analyzing budget 2020-21, I could make out following points.
(1) New Tax Slab – Less/No Saving 🙁
In new tax slab old deduction and exemption are removed. This means tax payer will move towards tendency of no saving or less saving. As of now in order to save taxes people make investment in various scheme like ELSS, PPF, Tax saving FD etc. Now people with higher income is likely do less saving as they will get less rebate. In new slab no benefit is extended to home loan which is bad news for the real estate sector.
(2) Confusion for Tax Payer 🙁
In budget option is given that tax payer can select old or new tax slab. This means choice needs to be made while filing income tax return. This will increase confusion among people. Calculation needs to be made for making selection which will be additional burden.
(3) Removal of Tax Deduction Gradually 🙁
It is clearly seen that government is planning to remove tax deduction and exemptions at longer run. Government has tried to adopt western culture where these types of two tax slabs exists such as USA, Canada, Australia but no proposal made for increasing social security and additional medical, pension or educational benefits to higher tax payer.
(4) Nothing about Increasing Tax Payer 🙁
No provision is made for increasing tax payer or how government is planning to increase tax payers in upcoming years? How black money will be curbed? How inflation will be controlled? No plan is mentioned in the budget.
What is your take on Budget 2020-21?
Note -This information is published based on limited information available about budget. The content will be updated as soon as new information is available.