Income Tax is levied on individual taxpayers based on the tax slab system. The tax slab provides the rate of income tax based on the different ranges of income. Therefore, the income tax increases with an increase in the total income. The government introduced it to ensure a progressive and fair tax system. The income tax slab is subject to revision based on any provision if detailed predominantly in the financial year's budget.

The Finance Minister introduced a new tax slab in the Union Budget, 2020 for the financial year 2020-2021, which is the income tax slab for AY 2021-22. Here is a detail about it for your reference.

What is the Income Tax Slab?
 

The income tax slab refers to the range of income and forms the basis for the applicability of the tax rate. The income tax rate also varies based on the category of taxpayers.
 

1. Resident and non-resident individuals less than 60 years of age.
2. Resident senior citizens between 60 and 80 years of age.
3. Resident super senior citizens more than 80 years of age.

The New Tax Regime for FY 2020-21
 

The new tax regime provides lesser rates and is the same for all the different categories of taxpayers, i.e., the individuals and HUF. However, it does not allow for the major tax* deductions and exemptions. Here is a detail of the new income tax slab and the rates for FY 2020-21.

Health and Education Cess is applicable on the income tax liability at 4% on the income tax liability.

The surcharge is applicable at the following rates:
 

It is important to note that the new regime does not consider major tax* deductions and exemptions that are applicable as per the old regime. There are 70 deductions and exemptions that are not applicable, and some of the prominent ones include:
 

1. House Rent Allowance
2. Leave Travel Allowance
3. Professional Tax
4. Deductions under Section 80C, 80D, etc.,
5. Interest on housing loans

Some of the deductions permitted under the new regime include:
 

1. Investment in the National Pension Scheme under Section 80CCD(2).
2. Transport allowance for differently-abled people
3. Conveyance allowance incurred for the expenditure related to work
    

How is the New Regime Income Tax Slab Different from the Old Regime?
 

The old regime provides the tax slab system that varies based on the category of taxpayers.

Income tax slab for individuals below 60 years of age and HUF

Income tax slab for individuals between 60 and 80 years of age

Income tax slab for individuals above 80 years of age

An additional 4% Health and Education Cess is applicable. And, the surcharge is applicable at 10% if the total income is between 50 Lakh and one crore and 15% of the income tax if the total income exceeds one crore.

Example
 

Consider an example with a person having the following particulars:

Let us calculate the tax payable based on the new regime and old regime.

Income Tax as per the slab rates

Therefore, if you plan to make investments in financial products to secure your life while saving tax, then the old regime tax slab is profitable. On the other hand, if you belong to the middle-income group without enough investments, the new regime with decreased slab rates introduced for the FY 2020-21 will seem beneficial.

Conclusion
 

Income Tax slab rates are subject to revision by the government. The Financial Budget 2020 introduced a new tax regime with different income slabs and rates for the taxpayer. It is a beneficial option for a person belonging to the middle-income group and not having many investments!

L&C/Advt/2022/Dec/3259