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New income tax slabs 2020

The new income tax regime 2020 came into effect from 1st April 2020. It provides a taxpayer with an option to choose between the existing tax regime of 2019-20 (with exemptions and deductions) or switch to the new regime of 2020-21 (without any exemptions). This article mentions all the new tax reforms of this financial year...

Income tax in India is a direct tax levied on a person’s income or profit earned in one financial year. The income may be actual or implicit. The government of India categorises different income ranges into ‘slabs’. These income slabs are altered from time to time based on the changes in price levels. The rate of income tax is directly proportional to the size of the income of an individual, i.e. if a person’s income falls under a higher income slab, then the income tax levied on them would also be higher. The government provides some benefits like income tax refunds or reductions to the lower-income groups and also puts forth tax incentives to collect the long-term funds. The funds that are invested in tax-saving schemes are subtracted from the gross income, which in turn deduces the total amount of taxable income of a taxpayer.

Under the existing tax regime of the FY 2019-20, there are three categories of taxpayers:

  1. Individuals below 60 years of age, including both residents and non-residents of the country. The income tax slab rates for this category:

Income tax slab                                         tax rate for an individual below 60 years

  1. Upto Rs 2,50,000                                No tax for income less than Rs 2,50,000
  2. Rs 2,50,001 to 5,00,000                      5% of the total income
  3. Rs 5,00,001 to 10,00,000                    Rs 12,500(tax rebate)+ 20% of total income
  4. Above Rs 10,00,000                           Rs 1,12,500(tax rebate)+ 30% of TC
  • Resident senior citizens aged between 60-80 years.

Income tax slab                                         tax rate for an individual within 60-80 years

  1. Upto Rs 3,00,000                                no tax levied
  2. Rs 3,00,000-5,00,000                          5% of total income
  3. Rs 5,00,000-10,00,000                        20% of total income
  4. More than Rs 10,00,000                     30% of total income
  • Resident super-senior citizens aged above 80 years.

Income tax slab                                         tax rate for an individual above 80 years

  1. Upto Rs 5,00,000                               no tax levied
  2. Rs 5,00,000-10,00,000                      20% of total income
  3. More than Rs 10,00,000                     30% of total income
    • a 4% health & education Cess is added on all above income taxes and the income ranges mentioned above are annual incomes.
    • as mentioned above, the income tax slabs are different for each category, which keep changing every year based on the budget.

The new tax regime for the financial year 2020-21

Income tax slab                                               tax rate

  1. Upto Rs 2,50,000                                no tax is levied
  2. Rs 2,50,000-5,00,000                          Rs 12,500 (tax rebate)+ 5% of total income
  3. Rs 5,00,000-7,50,000                          10% of total income
  4. Rs 7,50,000-10,00,000                        15% of total income
  5. Rs 10,00,000-12,50,000                      20% of total income
  6. Rs 12,50,000-15,00,000                      25% of total income
  7. Rs 15,00,000 and above                     30% of total income

*the health & education cess of 4% will be levied on all income taxes.

  • If an individual opts for the new tax regime of FY 2020-21, then they will have to give up certain exemptions and deductions that the previous regime offers.
  • The following are the exemptions and deductions that a taxpayer will have to let go if they choose the new tax regime:
    1. Leave Travel Allowance – the travel expenses of an employee that an employer covers.
    2. House Rent Allowance – the renting expenses of an employee that an employer covers.
    3. Transport or conveyance
    4. The daily expenses incurred in the course of employment
    5. Relocation allowance – the relocation/moving expenses of an employee covered by the employer.
    6. Helper allowance – the expenses incurred on maintaining a helper who performs important duties, and this allowance are covered by the employer.
    7. Children education allowance
    8. Other special allowances under Section 10(14) of the income tax act 2020.
    9. Standard deduction
    10. Professional tax
    11. Interest on housing loan (Section 24)
    12. Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJA)

If the individual is choosing the new regime, then:

  • The choice has to be made on or before the due date of filing return of income for the Assessment Year 2021-22.
  • If a taxpayer has a business income and has chosen the new regime, they are allowed to withdraw from the option only once. After withdrawal, the business taxpayer has to follow the previous tax regime. There is no such restriction for regular salaried persons.

The current income tax laws are different from the new laws because of the taxation based on three different age groups. The new tax regime reduces the tax rates of some tax slabs and also removes almost all exemptions and deductions. Our Finance Minister Smt. Nirmala Sitharaman introduced this new regime to simplify the taxation system of India. However, the people who wish to maintain the status quo can continue availing the current regime with the deductions and exemptions. There are about 120 exemptions in the current regime, and the taxpayers do not benefit from all of these, except a few. So, the Ministry of Finance after careful observation has removed 70 of them, to make the system uncomplicated and easy to comprehend.

Speaking of ease, the current pandemic situation has rendered many people jobless, and many others to lose major parts of their incomes, making their sustenance difficult. In view of such a dreadful economic crisis, the Finance Minister had announced several relief measures on the 24th of March this year. The income tax-related measures put forth by the government to ease the impact of the financial crisis are:

  • ‘Vivaad se Vishwas’ scheme- Every year, many people lose huge chunks of money during various long, pending litigations to solve their disputes. To curtail this unwanted expenditure for people and resolve the pending disputes, our Finance Minister announced a new dispute resolution scheme(Vivaad se Vishwas scheme) in her budget speech 2020-21. The bill for this scheme was passed on 5th February 2020 and on 17th March, the President assented to it, making it the ‘Direct Tax Vivaad se Vishwaas Act 2020’. This scheme provided an option for settling the disputes by paying an amount of disputed tax, on or before 31st March 2020. However, if the taxpayer chooses to avail of the scheme after 31st March, then they have to pay an additional 10% amount. But recently, it was announced that this extra amount will not be levied if the payment is made before 30th June 2020.
  • The last date for filing income tax returns- The last date for filing the income tax returns of the previous financial year was extended from 31st March to 30th  June, which again got postponed to 30th November 2020.
  • The last dates of various abidances also got postponed- The last dates of the below-mentioned compliances instructed under the income tax act 1961, wealth tax act, equalisation levy law, Vivaad se Vishwaas act, etc. which were due to get expired within 20th March to 29th June, were all extended to 30th June.
    1. Issue of notice
    2. Intimation of the notification
    3. Approval order
    4. Sanction order
    5. Filing of appeals
    6. Furnishing of tax returns, statements, applications, reports, and any other required documents.
    7. Completion of proceedings by tax authorities and any compliance by taxpayers regarding investments.
  • Waiving some charges for delayed payments- the normal interest rate of 12/18 % per annum over delayed payments of advanced tax, self-assessment tax, regular tax, tax deducted at source(TDS), Tax collected at source(TCS), Equalisation levy, STT, and CTT, made between 20th March to 30th June 2020, was reduced to 9%. It was also declared that no more penalty would be charged for delay relating to this period.
  • The last date to link Aadhar card with Pan card was extended from 31st March to 30th June 2020.
  • It was assured that the necessary legal amendments and legislative circulars regarding the aforementioned relief measures will be issued in due course.

The government has liberalised the rules and regulations to ease the impact of the pandemic. The deadlines for almost all important compliances and transactions have been extended, and many fee/charge waivers have been provided. So, we need to comply with the orders to avoid further hindrances.

Also read: All you need to know about the revised dates of Income Tax Returns

When it comes to which tax regime to choose for our benefit, we need to understand that both the regimes have their pros and cons. The current regime offers many exemptions that require people to invest in tax-saving schemes, which has developed a good habit of investment among them. On the other hand, the new tax regime has made the taxation system less tedious and also offers better flexibility to the taxpayers. So, people should consult a tax expert and then choose a better-suited regime based on which slab they belong to and their priorities. Regardless of the number of people accepting and opting for either of the regimes now, the upcoming financial year will depict which tax laws should be implemented in the long term.

Shalini Koppula
Hi, I am Shalini Koppula, a student of Xavier law school Bhubaneswar. I'm a socially driven writer and an enthusiastic reader. I want to advocate optimism through my work, and layout peace and love!

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