Introduction 

Income tax in India is imposed by the Government of India. Everyone who is earning in India has to pay income tax. The income could be pension, salary, or could be earnings from a savings account. Income Tax is a tax you pay directly to the government based on your income or profit. Income tax is collected by the Government of India. Taxes are of two types - direct tax and indirect tax. 

Income Tax Slabs & Rates 2020-2021

The Finance Minister introduced a new tax regime in Union Budget, 2020 wherein there is an option for individuals and HUF (Hindu Undivided Family) to pay taxes at lower rates without claiming deductions under various sections. The following Income Tax slab rates are notified in new tax regime vs old tax regime:

Income Tax Slab Tax Rates as Per New Regime Tax Rates as Per Old Regime
Rs. 0 – Rs. 2,50,000 Nil Nil
Rs. 2,50,001 – Rs. 5,00,000 5% 5%
Rs. 5,00,001 – Rs. 7,50,000 Rs. 12,500 + 10% of total income exceeding Rs. 5,00,000 Rs. 12,500 + 20% of total income exceeding Rs. 5,00,000
Rs. 7,50,001 – Rs. 10,00,000 Rs. 37500 + 15% of total income exceeding Rs. 7,50,000 Rs. 62,500 + 20% of total income exceeding Rs. 7,50,000
Rs. 10,00,001 – Rs. 12,50,000 Rs. 75,000 + 20% of total income exceeding Rs. 10,00,000 Rs. 1,12,500 + 30% of total income exceeding Rs. 10,00,000
Rs. 12,50,001 – Rs. 15,00,000 Rs. 1,25,000 + 25% of total income exceeding Rs. 12,50,000 Rs. 1,87,500 + 30% of total income exceeding Rs. 12,50,000
Above Rs. 15,00,000 Rs. 1,87,500 + 30% of total income exceeding Rs. 15,00,000 Rs. 2,62,500 + 30% of total income exceeding Rs. 15,00,000

 

New tax regime slab rates are not differentiated based on the age group. However, under the old tax regime, the basic income threshold exempts from tax for senior citizens (aged 60 to 80 years) and super senior citizens (aged above 80 years) is Rs. 3 lakhs and Rs. 5 lakhs respectively.

However, under the new tax regime, a person cannot claim up to 70 income tax deductions while calculating taxes. Hence, every person has to make his/her calculation as per old and new tax regime and calculate which one is beneficial based on the type of investments made and returns earned on those investments.

  • The tax calculated based on such rates will be subject to health and education cess of 4%. 

  • Any individual opting to be taxed under the new tax regime from FY 2020-21 onwards will have to give up certain exemptions and deductions.

  • Here is the list of exemptions and deductions that a taxpayer will have to give up while choosing the new tax regime.

    • Leave Travel Allowance (LTA)

    • House Rent Allowance (HRA)

    • Conveyance

    • Daily expenses in the course of employment

    • Relocation allowance

    • Helper allowance

    • Children education allowance

    • Other special allowances [Section 10(14)]

    • Standard deduction

    • Professional tax

    • Interest on housing loan (Section 24)

    • Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJA)

Additional Reading: How Is Corporate Tax Calculated?

 

Alternative Income Tax Slabs

Given below are the three tables for the alternative Income Tax Slabs:

 

Income Tax Slab for Individual who are below 60 years

Income Tax slab Tax Rate
Up to Rs. 2.5 lakhs Nil
From Rs. 2,50,001 to Rs.5,00,000 5% of the total income that is more than Rs. 2.5 lakhs + 4% cess
From Rs. 5,00,001 to Rs. 10,00,000 20% of the total income that is more than Rs. 5 lakhs + Rs.12,500 + 4% cess
Income of above Rs.10 lakh 30% of the total income that is more than Rs. 10 lakhs + Rs. 1,12,500 + 4% cess

 

 

Income Tax Slab between 60-80 years

Income Tax slabs Tax Rate
Up to Rs.3 lakh Nil
From Rs. 3,00,001 to Rs. 5,00,000 5% of the total income that is more than Rs. 3 lakhs + 4% cess
From Rs. 5,00,001 to Rs. 10,00,000 20% of the total income that is more than Rs.5 lakh + Rs. 10,500 + 4% cess
Income of above Rs. 10 lakhs 30% of the total income that is more than Rs. 10 lakhs + Rs. 1,10,000 + 4% cess

 

Income Tax Slabs for individual above 80 years

Income Tax slabs Tax Rate
Up to Rs. 5 lakhs Nil
From Rs. 5,00,001 to Rs. 10,00,000 20% of the total income that is more than Rs. 5 lakhs + 4% cess
Above Rs. 10 lakhs 30% of the total income that is more than Rs. 10 lakhs + Rs. 1,00,000 + 4% cess

 

Important Dates Pertaining to Income tax 

Some of the important dates to remember for individuals who fall under the bracket to pay Income Tax for the year (FY 2019-20 & AY 2020-21) is mentioned in the table below:

  • Before January 31 - Individuals must submit their proof of investment

  • Before March 31 - It is the deadline before which any investments under Section 80C of the Income Tax Act, 1961 must be made

  • Before 31 July - Due date to file an income tax return

  • Between October and November - Tax returns must be verified

Income Tax Deductions and Return

Income tax deductions help you to reduce your tax liability as they lower your net taxable income. For example, if you invest in an ELSS mutual fund, you qualify for a deduction of up to Rs. 1.5 lakh under Section 80C. This amount is then deducted from your gross income to give you your net taxable income.

The Income Tax Act allows you to claim deductions under several Sections when you make certain investments or expenditures. For instance, Section 80D allows you to claim up to Rs. 15,000 for health insurance premiums and Section 24B allows you to claim up to Rs. 2 lakhs based on home loan interest repayment.

An income tax return is a mode via which you can file returns at the close of the financial year. Through this form, you provide tax details such as your gross income, annual deductions, and net liability. Depending on your profile, you will have to choose the right one from the 7 ITR forms available. For instance, individuals earning less than Rs. 50 lakhs can use ITR-1, proprietors can use ITR-3 and those under the presumptive tax scheme can use ITR-4.

Additional Reading: How Much Annual Income Is Tax-Free?

End Note

New tax slabs were announced in Budget 2020. While these have come into effect, the old tax slabs also remain in effect, giving a choice to the individual to opt between the two. Under this new Income tax rule of 2020, the individual will have to give up on some of the deductions that could help reduce taxable income like standard deduction. The alternative tax regime is expected to benefit the young taxpayers as they would not be committed to expenditures such as insurance, tuition fees of children, etc.