WHAT IS INCOME TAX
An income tax is a tax imposed on individuals or entities on their incomes and that varies with respective income or profits. Income tax generally is computed as the product of a tax rate times the taxable income.
Taxation rates may vary by characteristics or type of the taxpayer. The tax rates may increase as taxable income of the person increases.
NEW TAX REGIME according to the Union Budget 2020
The finance minister N. Sitharaman on 1st February 2020 presented the union budget 2020 in the parliament.
In the budget, the finance minister unveiled the new tax rates and also mentioned that an individual would now have to pay lower income tax than he used to pay. Under the new tax regime the tax rates are:
• A person earning income up to Rs. 5 lakhs pa. would be exempted from paying the taxes.
• A person earning income ranging from Rs. 7.5 lakhs to 10 lakhs pa. would have to pay income tax at 15%
• A person earning income ranging from Rs. 10 lakhs to 12.5 lakhs pa. would have to pay income tax at 20%
• A person earning income ranging from Rs. 12.5 lakhs to 15 lakhs pa. would have to pay income tax at 25%
• A person earning income above 15 lakhs pa. would have to pay income tax at 30%
However, the finance minister shortly after announcing the new slab rates also mentioned that the new slab rates would be optional and it will be the prerogative of the person paying the income tax to choose whether he wants to follow the old regime or the new regime.
There is a catch for the person who decides to pay taxes based on the new rates, the person FM has also removed around 70 of the ‘deductions’ or ‘exemptions’ out of more than 100, which helped a person to reduce salary which was taxed.
The new regime is optional means that the old tax rates will continue to exist and the person would have to choose which rates would be more convenient and beneficial for him.
S.no. | New Tax Regime | Old Tax Regime | ||
| Salary range | Applicable tax rates | Salary range | Applicable tax rates |
1. | Up to 5 lakhs | Nil | Up to 5 lakhs | Nil |
2. | 5 lakhs-7.5 lakhs | 10% | 5 lakhs-10 lakhs | 20% |
3. | 7.5 lakhs-10 lakhs | 15% | Above 10 lakhs | 30% |
4. | 10 lakhs-12.5 lakhs | 20% |
|
|
5. | 12.5 lakhs-15 lakhs | 25% |
|
|
6. | Above 15 lakhs | 30% |
|
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The option of choosing the tax regime which benefits the person will depend on the income composition of the person and the kind of investments made by the person.
Comparison Between Old Tax Regime and the New Tax Regime:
Individual's Income | Old Tax Regime ( Deduction u/s 80 C & 80 D and standard deduction considered) | New Tax Regime (No exemption & No Deduction) |
|---|---|---|
Rs. 5 Lakhs | Rs. 0 | Rs. 0 |
Rs 6 Lakhs | Rs. 0 | Rs. 22,500 |
Rs. 7 Lakhs | Rs. 0 | Rs. 32,500 |
Rs. 8 Lakhs | Rs. 27,500 | Rs. 45,000 |
Rs. 9 Lakhs | Rs. 47,500 | Rs. 60,000 |
Rs. 10 Lakhs | Rs. 67,500 | Rs. 75,000 |
Rs. 15 Lakhs | Rs. 1,95,000 | Rs. 1,87,500 |
OTHER ANNOUNCEMENTS
The finance minister also made announcements related to changes in other rates. She also mentioned that the
• The income of charitable institutions to be exempted from paying tax and any donation made to charitable institutions by any person would be tax-deductible i.e. the person can deduct the amount donated from his taxable income.
• Concessional tax rate of 15% extended to power generation companies.
• The tax rate of 22% plus surcharge and cess will be extended on Cooperative societies.
CONCLUSION:
The newly introduced tax regime in the budget will be applicable for the FY 2020-21. These tax rates, however, being lower than the previous ones will still be optional and it will be open for the person to choose how he will pay his income tax (whether with the new tax rates or the old ones) depending on which regime benefits him.
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