Income Tax Slab: You Will Now Pay Rs 1.95 Lakh In Tax On Rs 15 Lakh Income In This Case
Income Tax Slab: According to Budget 2020 proposals, annual gross income of Rs 15 lakh will lead to a tax liability of Rs 1.95 lakh, but there's a catch: the assessee has to give up a range of income tax exemptions and deductions (including Section 80C). First things first, the new income tax slabs proposed in Budget 2020 are optional, subject to certain conditions. Finance Minister Nirmala Sitharaman used the example given above to explain the difference in tax liability for a person not claiming any exemptions. "A person earning Rs 15 lakh in a year and not availing any deductions etc will pay only Rs 1,95,000 as compared to Rs 2,73,000 in the old regime," she said during her Budget speech. (Also read: 5 New Income Tax Slabs With Lower Rates)
The Finance Minister said that that for such a person, the tax burden will be reduced by Rs 78,000 in the new tax regime.Â
The person "would still be the gainer in the new regime even if he was taking deduction of Rs 1.5 lakh under various sections of Chapter- VI-A of the Income Tax Act under the old regime", the Finance Minister explained. The Budget proposes to remove around 70 out of more than 100 exemptions and deductions available today with an aim to simplify the Income Tax Act, Ms Sitharaman said.Â
But what all was taken into account in this example? Here's how it works:
For someone who didn't claim any exemption whatsoever - and this includes deductions in taxable income available under Section 80C of the Income Tax Act and even Standard Deduction - the tax liability in Assessment Year 2020-21 will be as follows:
| S No. | Income Tax Slab | Tax |
|---|---|---|
| 1 | 5% | 12500 |
| 2 | 20% | 100000 |
| 3 | 30% | 150000 |
| 4 | Total (1 + 2 + 3) | 262500 |
| 5 | Cess @ 4% | 10500 |
| 6 | Total Income Tax Payable (4 + 5) | 273000 |
The Finance Bill 2020 (Budget 2020-21) proposes the following optional tax rates, promising "significant relief to taxpayers and more so to those in the middle class":
| Taxable Income Slab (In Rupees) | Existing Tax Rates | New Tax Rates |
|---|---|---|
| 0-2.5 lakh | Exempt | Exempt |
| 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% |
| (Source: Finance Bill 2020) | ||
Now, for the same person, the tax liability in Assessment Year 2021-22 will be as follows:
| S No. | Income Tax Slab | Tax |
|---|---|---|
| 1 | 5% | 12500 |
| 2 | 10% | 25000 |
| 3 | 15% | 37500 |
| 4 | 20% | 50000 |
| 5 | 25% | 62500 |
| 6 | 30% | 0 |
| 7 | Total (1 + 2 + 3 + 4 + 5 + 6) | 187500 |
| 8 | Cess @ 4% | 7500 |
| 9 | Total Income Tax Payable (4 + 5) | 195000 |
Let's take a look at few examples to understand in which cases the optional tax rates will benefit the user, and by how much (all figures in rupees):
| Old Regime | New Regime | ||||||
|---|---|---|---|---|---|---|---|
| Gross Income (In Lakh) | Deduction Under 80C | Taxable Income | Income Tax | Taxable Income | Income Tax | Saving (New Vs Old Regime) | More Beneficial Regime |
| 3.5 lakh | 1.5 lakh | 2 lakh | 0 | 3.5 lakh | 0 | 0 | No change |
| 4 lakh | 1.5 lakh | 2.5 lakh | 0 | 4 lakh | 0 | 0 | No change |
| 4.5 lakh | 1.5 lakh | 3 lakh | 0 | 4.5 lakh | 0 | 0 | No change |
| 5 lakh | 1.5 lakh | 3.5 lakh | 0 | 5 lakh | 0 | 0 | No change |
| 5.5 lakh | 1.5 lakh | 4 lakh | 0 | 5.5 lakh | 18,200 | -18,200 | Old |
| 6 lakh | 1.5 lakh | 4.5 lakh | 0 | 6 lakh | 23,400 | -23,400 | Old |
| 6.5 lakh | 1.5 lakh | 5 lakh | 0 | 6.5 lakh | 28,600 | -28,600 | Old |
| 7 lakh | 1.5 lakh | 5.5 lakh | 23,400 | 7 lakh | 33,800 | -10,400 | Old |
| 7.5 lakh | 1.5 lakh | 6 lakh | 33,800 | 7.5 lakh | 39,000 | -5,200 | Old |
| 8 lakh | 1.5 lakh | 6.5 lakh | 44,200 | 8 lakh | 46,800 | -2,600 | Old |
| 8.5 lakh | 1.5 lakh | 7 lakh | 54,600 | 8.5 lakh | 54,600 | 0 | No change |
| 9 lakh | 1.5 lakh | 7.5 lakh | 65,000 | 9 lakh | 62,400 | 2,600 | New |
| 9.5 lakh | 1.5 lakh | 8 lakh | 75,400 | 9.5 lakh | 70,200 | 5,200 | New |
| 10 lakh | 1.5 lakh | 8.5 lakh | 85,800 | 10 lakh | 78,000 | 7,800 | New |
| 10.5 lakh | 1.5 lakh | 9 lakh | 96,200 | 10.5 lakh | 88,400 | 7,800 | New |
| 11Â lakh | 1.5 lakh | 9.5 lakh | 1,06,600 | 11 lakh | 98,800 | 7,800 | New |
| 11.5Â lakh | 1.5 lakh | 10 lakh | 1,17,000 | 11.5 lakh | 1,09,200 | 7,800 | New |
| 12Â lakh | 1.5 lakh | 10.5 lakh | 1,32,600 | 12 lakh | 1,19,600 | 13,000 | New |
| 12.5Â lakh | 1.5 lakh | 11 lakh | 1,48,200 | 12.5 lakh | 1,30,000 | 18,200 | New |
| 13Â lakh | 1.5 lakh | 11.5 lakh | 1,63,800 | 13 lakh | 1,43,000 | 20,800 | New |
| 13.5Â lakh | 1.5 lakh | 12 lakh | 1,79,400 | 13.5 lakh | 1,56,000 | 23,400 | New |
| 14Â lakh | 1.5 lakh | 12.5 lakh | 1,95,000 | 14 lakh | 1,69,000 | 26,000 | New |
| 14.5Â lakh | 1.5 lakh | 13 lakh | 2,10,600 | 14.5 lakh | 1,82,000 | 28,600 | New |
| 15Â lakh | 1.5 lakh | 13.5 lakh | 2,26,200 | 15 lakh | 1,95,000 | 31,200 | New |
| 15.5Â lakh | 1.5 lakh | 14 lakh | 2,41,800 | 15.5 lakh | 2,10,600 | 31,200 | New |
| 16Â lakh | 1.5 lakh | 14.5 lakh | 2,57,400 | 16 lakh | 2,26,200 | 31,200 | New |
| 16.5Â lakh | 1.5 lakh | 15 lakh | 2,73,000 | 16.5 lakh | 2,41,800 | 31,200 | New |
| 17Â lakh | 1.5 lakh | 15.5 lakh | 2,88,600 | 17 lakh | 2,57,400 | 31,200.00 | New |
| 17.5Â lakh | 1.5 lakh | 16 lakh | 3,04,200 | 17.5 lakh | 2,73,000 | 31,200 | New |
| 18Â lakh | 1.5 lakh | 16.5 lakh | 3,19,800 | 18 lakh | 2,88,600 | 31,200 | New |
| 18.5Â lakh | 1.5 lakh | 17 lakh | 3,35,400 | 18.5 lakh | 3,04,200 | 31,200 | New |
| 19Â lakh | 1.5 lakh | 17.5 lakh | 3,51,000 | 19 lakh | 3,19,800 | 31,200 | New |
| 19.5Â lakh | 1.5 lakh | 18 lakh | 3,66,600 | 19.5 lakh | 3,35,400 | 31,200 | New |
| 20Â lakh | 1.5 lakh | 18.5 lakh | 3,82,200 | 20 lakh | 3,51,000 | 31,200 | New |
| 20.5Â lakh | 1.5 lakh | 19 lakh | 3,97,800 | 20.5 lakh | 3,66,600 | 31,200 | New |
(The examples given above are based on the assumption that the assessee fully utilises the exemptions available under Section 80C in the old structure and gives them up in the new structure.)
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