New Income Tax Slabs & Tax Rates in India for FY 2020-21

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Budget 2020 has proposed new tax rules by reducing the income tax slab rates to reduce the total tax payable by the individual taxpayers. As per the new tax rules proposed by the Finance Minister, 70 tax exemptions will be removed. The removal of tax deductions and exemptions has certainly made the tax agreement less tedious. However, the keen tax planners who maximized their tax exemptions will most likely have to pay more tax under the new tax rule.

The budget has tried to profit the taxpayers by limiting the incentives to save. As per the new income tax rule, the income between Rs.5 lakh-Rs.7.5lakh will be taxed at 10%, which is cut down from 20%. The income between Rs.7.5 lakh-Rs.10lakh will be taxed 15%, which is cut down from 20% and income between Rs.10lakh-Rs12.5 lakh will be taxed 20%, which is cut down from 30%. The income between Rs.12.5lakh-Rs.15 lakh will be taxed 25%, which is cut down from the current 30%. Let’s take a look at the income tax slab rate 2020-2021.

In the interim budget 2020, no tax exemption has been given to income up to Rs.5 lakh.

Total Income Simplified Optional Tax Rate
Up to Rs.2.5 lakh Nil
From 2.5 lakh- Rs.5 lakh 5%
Rs.5 lakh-Rs.7.5 Lakh 10%
Rs.7.5 Lakh-Rs.10 lakh 15%
Rs.10 lakh-Rs.12.5 lakh 20%
Rs.12.5 lakh-Rs.15 lakh 25%
Above Rs.15 Lakh 30%

*The cess and surcharge on income tax payable in the new proposed tax law are same as the existing tax rules.

The budget 2020 has offered the option to the individual taxpayers to choose between the existing income tax rules (which allow availing the existing tax deductions and exemptions) and new tax rules with reduced income tax rates and new income tax slabs but no tax deductions and exemptions.

According to the Finance Minister, the new tax law offers lower tax slab rates and at the same time removes the tax exemption. This will result in the lower tax outgo for the taxpayers.

For the better knowledge of readers, here we have shown what has been removed from the income tax regime.

Some of 70 deduction and exemptions that are removed in the new regime are:

  • Section 80C
  • House Rent Allowance
  • Leave Travel Allowance
  • Housing Loan Interest
  • Standards Deductions
  • Medical Insurance Premium
  • Education Loan Interest
  • Savings bank Interest

Some of 50 deduction and exemptions that have been left untouched are:

  • Agriculture Income
  • Standard Deduction on Rent
  • Income from Life Insurance
  • VRS Proceeds
  • Retrenchment Compensation
  • Leave Encashment on Retirement

The option given to the taxpayers to switch between new tax structures is a good move because as per their financial situation the taxpayers will be able to make the right choice. However, the taxpayers who avail various deductions and exemptions like 80C deductions and HRA (House Rent Allowance) may not be benefitted much from switching to the new tax regime.

As per the new budget, the surcharge on income tax has not been changed. The taxpayers with income between Rs.50lakhs and Rs.1 crore will continue to pay 10% surcharge on the tax. On the other hand, the surcharge of 15% will be applicable for the income between Rs.1 crore –Rs.2 crore, 25% for income between Rs.2 crore-Rs.5 crore and 37% for income above Rs. 5 crores. Thus, the individuals who are earning below these limits will not receive any benefit if they give up the tax exemptions and move to a new tax regime.

Tax Regime Impact on Taxpayers

Let’s take a look at how new tax rules will affect the tax outgo of taxpayers at different levels of income.

For income of Rs.15 lakh

  Old Income Tax Rule (Without Deductions) Old Income Tax Rule (With Deductions) New income Tax Rule
Income Rs.15 lakh Rs.15 lakh Rs.15 lakh
Exemptions & Deductions Nil Rs.2,00,000 Nil
Taxable Income Rs.15,00,000 Rs.13,00,000 Rs.15,00,000
Tax Rs.2,62,500 Rs.2,02,500 Rs.1,87,500
Cess@4% Rs.10,500 Rs.8,100 Rs.7,500
Total Tax 2,73,000 Rs.2,10,600 Rs.1,95,000

Tax exemptions assumed: Rs.15 lakh under 80C; Rs.50,000 standard deduction.

For Income 30 Lakh

  Old Income Tax Rule (Without Deductions) Old Income Tax Rule (With Deductions) New income Tax Rule
Income Rs.30 lakh Rs.30 lakh Rs.30 lakh
Exemptions & Deductions Nil Rs.4,25,000 Nil
Taxable Income Rs.30,00,000 Rs.25, 75, 000 Rs.30,00,000
Tax Rs.7,12,500 Rs.5,85,500 Rs.6,37,500
Cess@4% Rs.28,500 Rs.23,400 Rs.25,500
Total Tax 7,41,000 Rs.6,08,400 Rs.6,63,000

*Tax exemptions under section 80C is applicable up to the maximum limit of Rs.1.5 lakh for Rs.30 lakhs, Rs.60 lakhs, Rs.1.2 crore; Rs.50,000 and Rs 25,000 under section 80D is applicable;  home loan of interest up to Rs.2 lakh under section 24.

For Income Rs.60 lakh

  Old Income Tax Rule (Without Deductions) Old Income Tax Rule (With Deductions) New income Tax Rule
Income Rs.60 lakh Rs.60 lakh Rs.60 lakh
Exemptions & Deductions Nil Rs.4,25,000 Nil
Taxable Income Rs.60,00,000 Rs.55, 75, 000 Rs.60,00,000
Surcharge Rs.1,61,250 Rs.1,48,500 Rs.1,53,750
tax Rs.17,73,750 Rs.16,33,500 Rs.16,91,250
Cess@4% Rs.70,950 Rs.65,340 Rs.67,650
Total Tax Rs.18,44,700 Rs.16, 98,840 Rs.17,58,900

Surcharge @10%

For Income of Rs.1.2 crore

  Old Income Tax Rule (Without Deductions) Old Income Tax Rule (With Deductions) New income Tax Rule
Income Rs.1.2 crore Rs.1.2 crore Rs.1.2 crore
Exemptions & Deductions Nil Rs.4,25,000 Nil
Taxable Income Rs.1,20,00,000 Rs.1,15,75,000 Rs.1,20,00,000
Surcharge Rs.5,11,875 Rs.4,92,750 Rs.5,00,625
tax Rs.39,24,375 Rs.37,77,750 Rs.38,38,125
Cess@4% Rs.1,56,975 Rs.1,51,110 Rs.1,53,525
Total Tax Rs.40,81,350 Rs.39,28,860 Rs.39,91,650

Surcharge @15%