The Interim Budget presented by the finance minister, Piyush Goyal, on February 01, 2019, made some major changes to the tax rates applicable to individuals. Effectively, the budget has made net taxable income free of tax up to Rs5 lakhs. But there is a catch here. The tax slabs have not been tinkered with. Instead, the tax on the lowest slab will be given as rebate to the assessee. For example, the Finance Bill envisages a maximum tax rebate of Rs12,500 under Section 87A of the Income Tax Act. What needs to be remembered is that these new rates of tax will be applicable from the financial year 2019-20 corresponding to the assessment year 2020-21. Let us understand this issue better as we go through the individual slabs for income tax applicable.
Applicable Income Tax Slab Rates for AY2020-21 for Individuals
The tax slabs will depend on whether the tax assessee falls in the category of a super senior citizen (above 80 years), senior citizen (60-80 years) or others (less than 60 years)
A. Individual (resident or NRI), less than 60 years on the last day of the previous year:
Net income range | Income-Tax rate |
Up to Rs2,50,000 | Nil |
Rs2,50,001 to Rs5,00,000 | 5% |
Rs5,00,001 to Rs10,00,000 | 20% |
Above Rs10,00,000 | 30% |
B. Senior citizens, above 60 years but less than 80 years during the previous year:
Net income range | Income-Tax rate |
Up to Rs3,00,000 | Nil |
Rs3,00,001 to Rs5,00,000 | 5% |
Rs5,00,000 to Rs10,00,000 | 20% |
Above Rs10,00,000 | 30% |
C. Super senior citizens, who are 80 years or more during the previous year:
Net income range | Income-Tax rate |
Up to Rs 5,00,000 | Nil |
Rs. 5,00,001 to Rs10,00,000 | 20% |
Above Rs10,00,000 | 30% |
Additional levies over and above the basic slabs
The tax calculated as per the above slabs provides the basic tax payable. There are three adjustments to be made to this figure as under:
· Income Tax Act levies surcharge on higher income groups. If the net taxable income is more than Rs50 lakhs and up to Rs100 lakhs, a surcharge of 10% is levied. If the annual income is more than Rs100 lakhs, then a surcharge of 15% is applicable on that slab.
· While surcharge is subject to the income level, the health and education cess of 4% is chargeable to all assessees. In the case of higher-income groups, this cess is payable on 4% of the (sum of tax payable and surcharge).
· Rebate of 100% of tax payable will be provided under Section 87A, subject to a maximum of Rs12,500 per assessee. That makes any taxable income up to Rs5 lakh was entirely tax-free.
· The rate of standard deduction has been enhanced from Assessment Year 2020-21 to Rs50,000 per year from Rs40,000 currently. This is available as a flat deduction to all assessees in place of transport allowance and medical reimbursement.
Earn a million and pay zero tax
One of the advantages of the new tax slabs is that the rebate under Section 87A will be applicable if the net taxable income is up to Rs5 lakhs. This allows you to plan your taxes accordingly. You will be surprised but you can pay zero tax even if your total income is more than Rs10 lakh. Here is how!
Income and Investment particulars | Tax Calculation (AY 2020-21) |
Gross Income | Rs10,25,000 |
Section 80C – PF, LIC | Rs1,50,000 |
Section 24 – Home Loan Interest | Rs2,00,000 |
Section 80E – Interest on Education Loan | Rs70,000 |
Section 80D – Health Insurance | Rs55,000 |
Total Deductions | Rs4,75,000 |
Net Income | Rs5,50,000 |
Standard Deduction | Rs50,000 |
Net Taxable Income | Rs5,00,000 |
Tax Payable | Rs.12,500 |
Rebate under Section 87A | Rs.12,500 |
Net Tax Payable for FY2019-20 | Nil |
As can be seen from the above table, you can actually pay zero tax even if you are earning more than a million during the year. With the new fiscal year has just begun, these considerations can go into your tax planning.
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