This Article is From Feb 03, 2020

Income Tax Slab: You Will Now Pay Rs 1.95 Lakh In Tax On Rs 15 Lakh Income In This Case

Budget 2020 Income Tax Slab: Finance Minister Nirmala Sitharaman used an example to explain the difference in tax liability for a person not claiming any exemptions.

Income Tax Slab: You Will Now Pay Rs 1.95 Lakh In Tax On Rs 15 Lakh Income In This Case

Income Tax Slab 2020: The assessee has to give up a range of tax benefits to use the new tax rates

Highlights

  • Assessee has to give up exemptions to take benefit of optional new rates
  • Those making Rs 15 lakh/year, not claiming exemptions will pay less tax
  • For such persons, tax outgo to be reduced by Rs 78,000: Finance Minister

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. 

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. 

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 SlabTax
15%12500
220%100000
330%150000
4Total (1 + 2 + 3)262500
5Cess @ 4%10500
6Total 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 RatesNew Tax Rates
0-2.5 lakhExemptExempt
2.5-5 lakh5%5%
5-7.5 lakh20%10%
7.5-10 lakh20%15%
10-12.5 lakh30%20%
12.5-15 lakh30%25%
Above 15 lakh30%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 SlabTax
15%12500
210%25000
315%37500
420%50000
525%62500
630%0
7Total (1 + 2 + 3 + 4 + 5 + 6)187500
8Cess @ 4%7500
9Total 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 RegimeNew 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 lakh1.5 lakh2 lakh03.5 lakh00No change
4 lakh1.5 lakh2.5 lakh04 lakh00No change
4.5 lakh1.5 lakh3 lakh04.5 lakh00No change
5 lakh1.5 lakh3.5 lakh05 lakh00No change
5.5 lakh1.5 lakh4 lakh05.5 lakh18,200-18,200Old
6 lakh1.5 lakh4.5 lakh06 lakh23,400-23,400Old
6.5 lakh1.5 lakh5 lakh06.5 lakh28,600-28,600Old
7 lakh1.5 lakh5.5 lakh23,4007 lakh33,800-10,400Old
7.5 lakh1.5 lakh6 lakh33,8007.5 lakh39,000-5,200Old
8 lakh1.5 lakh6.5 lakh44,2008 lakh46,800-2,600Old
8.5 lakh1.5 lakh7 lakh54,6008.5 lakh54,6000No change
9 lakh1.5 lakh7.5 lakh65,0009 lakh62,4002,600New
9.5 lakh1.5 lakh8 lakh75,4009.5 lakh70,2005,200New
10 lakh1.5 lakh8.5 lakh85,80010 lakh78,0007,800New
10.5 lakh1.5 lakh9 lakh96,20010.5 lakh88,4007,800New
11 lakh1.5 lakh9.5 lakh1,06,60011 lakh98,8007,800New
11.5 lakh1.5 lakh10 lakh1,17,00011.5 lakh1,09,2007,800New
12 lakh1.5 lakh10.5 lakh1,32,60012 lakh1,19,60013,000New
12.5 lakh1.5 lakh11 lakh1,48,20012.5 lakh1,30,00018,200New
13 lakh1.5 lakh11.5 lakh1,63,80013 lakh1,43,00020,800New
13.5 lakh1.5 lakh12 lakh1,79,40013.5 lakh1,56,00023,400New
14 lakh1.5 lakh12.5 lakh1,95,00014 lakh1,69,00026,000New
14.5 lakh1.5 lakh13 lakh2,10,60014.5 lakh1,82,00028,600New
15 lakh1.5 lakh13.5 lakh2,26,20015 lakh1,95,00031,200New
15.5 lakh1.5 lakh14 lakh2,41,80015.5 lakh2,10,60031,200New
16 lakh1.5 lakh14.5 lakh2,57,40016 lakh2,26,20031,200New
16.5 lakh1.5 lakh15 lakh2,73,00016.5 lakh2,41,80031,200New
17 lakh1.5 lakh15.5 lakh2,88,60017 lakh2,57,40031,200.00New
17.5 lakh1.5 lakh16 lakh3,04,20017.5 lakh2,73,00031,200New
18 lakh1.5 lakh16.5 lakh3,19,80018 lakh2,88,60031,200New
18.5 lakh1.5 lakh17 lakh3,35,40018.5 lakh3,04,20031,200New
19 lakh1.5 lakh17.5 lakh3,51,00019 lakh3,19,80031,200New
19.5 lakh1.5 lakh18 lakh3,66,60019.5 lakh3,35,40031,200New
20 lakh1.5 lakh18.5 lakh3,82,20020 lakh3,51,00031,200New
20.5 lakh1.5 lakh19 lakh3,97,80020.5 lakh3,66,60031,200New

(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.)