Simplifying New Tax Rates and which Tax Slab is suitable for you ??
- Mangesh
- Feb 4, 2020
- 3 min read
What is Income Tax Slab ?
In India Income Tax is levied on income of individual taxpayers on basis of slab system where on each slab of your income you have to pay different tax. Higher the income and as you move upward in slabs more percentage of your income is charged as Tax.
During every budget government reviews tax slabs and if required makes necessary changes
This year during 2020 budget government has introduced new tax slabs, last change was made during year 2018.
There are three categories of individual taxpayers:
1. Individuals (below the age of 60 years) which includes residents as well as non-residents 2. Resident Senior citizens (60 years and above but below 80 years of age) 3. Resident Super senior citizens (above 80 years of age)
Each of the above category has different tax slabs, for Simplicity let us consider Individuals which are below 60 years,
Previous Tax Slabs
Following are the income tax slabs for FY 2019-20,
A tax rebate under section 87A is allowed to individual taxpayers a maximum amount of:
– Rs 2,500 for total income up to Rs 3.5 lakh for FY 2018-19
– Rs 12,500 for total income up to Rs 5 lakh for FY 2019-20
Note: An additional 4% Health & education cess will be applicable on the tax amount calculated as above.
Let’s Understand tax calculation with an example,
This Year during Budget 2020 new tax slabs were introduced with reduced rates
But, in order to opt for new tax rates one has to forego all the tax Exemptions and Deductions
This New system is optional and will co-exist with old one, i.e. you can choose old tax slabs and claim all tax exemptions or Choose new system and can not claim any tax exemptions
New tax Slabs
Individuals having net taxable income of up to Rs 5 lakh will be able to avail tax rebate of Rs 12,500 under section 87A in both, the existing and new, tax regimes. Effectively, this would mean that individual taxpayers having net taxable income of up to Rs 5 lakh will continue to pay zero tax.
But those who opt for new tax regime will not be able to avail common tax breaks such as deductions under Section 80C (Home Loan Pricipal, ELSS, Life Insurance, PPF, EPF, NSC & Others), Section 80D (Health Insurance Premium for self, and under 60 parents), Section 80CCD-1B (Self Contribution to NPS), Section 24B (Interest on Home loan), Section 80GG (House Rent Allowance) etc.
These tax proposals will come into effect from April 1, 2020, once these are passed by the Parliament. Which Tax Slab to Choose ?
New tax slab has lower tax rates but it do not allow any tax exemption to be claimed
If you are not claiming any tax exemptions new tax rates will save about Rs. 75000
As you can see from following example individual earning 15 Lakhs per year and not claiming any tax exemptions will have to pay Rs. 262500 tax as per old tax slab and has to pay only Rs.187500 as per new tax slabs.
If you claim Rs. 2,50,000 tax exemption taxes then, taxes according to both tax slab will be same irrespective of your Income
Hence, for individuals claiming tax exemptions lower than Rs 2,50,000 should opt for new tax slabs. But, if total tax claims are greater than Rs 2,50,000, Old tax slabs are better.
If Total Tax Exemptions = 2,50,000, you will pay same taxes in both tax slabs
If Total Tax Exemptions < 2,50,000, Opt for New Tax Slabs
If Total Tax Exemptions > 2,50,000, Continue with Old Tax Slabs
Here is the free Income Tax Calculator
You can put your salary and Income details or Total Gross Income along with all tax deductions you and eligible for, and compare taxes if you choose old or New tax rates. Based of difference in taxes of both tax brackets it will automatically tell you which Tax slab to Opt for.
Download Excel Sheet by Opening following Link -
Comments