How Your Income Tax Outgo Is Set To Change Going Forward
A full rebate to individuals with up to Rs 5 lakh of annual income and a 25 per cent increase in the standard deduction limit allowed to the salaried taxpayer. These are some of the changes announced by the government earlier this year. According to income tax laws, the assessees' overall tax outgo is set to change in the coming years. While the income tax changes announced in Budget 2019 will take effect from the financial year 2019-20 (assessment year 2020-21), the existing laws define how much income tax individuals have to shell out for the year ended March 31 (FY2018-19). (Also read: How to calculate income tax liability)
Here's a comparison of income tax laws applicable in assessment years 2019-20 and 2020-21, and how they are likely to impact your income tax liability:
Careful planning of investments as per income tax laws can lead to a significant reduction in the assessees' overall tax outgo, say financial advisors. Experts have shared the following examples to point out the key changes in income tax laws applicable to assessment years 2019-20 and 2020-21:
| Assessment year 2020-21 income tax calculation examples | ||||
|---|---|---|---|---|
| Taxable annual income in rupees (after adjusting deductions) | 3,50,000 | 4,00,000 | 5,00,000 | 10,00,000 |
| Tax | 5,000 (@ 5% on 1,00,000) | 7,500 (@ 5% on 1,50,000) | 12,500 (@ 5% on 2,50,000) | 1,12,500 (@5% on 2,50,000, 20% on 5,00,000) |
| Rebate under Section 87A of I-T Act | 5,000 | 7,500 | 12,500 | NA |
| Tax liability | 0 | 0 | 0 | 1,12,500 |
| Cess @ 4% | 0 | 0 | 0 | 4,500 |
| Tax payable (after cess) | 0 | 0 | 0 | 1,17,000 |
| Assessment year 2019-20 income tax examples | ||||
| Taxable income | 3,50,000 | 4,00,000 | 5,00,000 | 10,00,000 |
| Tax | 5,000 | 7,500 | 12,500 | 1,12,500 |
| Rebate | 2,500 | NA | NA | NA |
| Balance Tax | 2,500 | 7,500 | 12,500 | 1,12,500 |
| Cess | 100 | 300 | 500 | 4,500 |
| Tax payable | 2,600 | 7,800 | 13,000 | 1,17,000 |
Here's a brief description of two noteworthy changes in income tax laws proposed in the February 1 Budget:
- Full tax rebate on annual personal income up to Rs. 5 lakh; in other cases, income tax rates/slabs remain unchanged
- Standard deduction limit (applicable to employees and pensioners) raised from Rs. 40,000 (Budget 2018) to Rs. 50,000 (Budget 2019)
