Finance Minister Ms. Nirmala Sitharaman, in her 2nd Budget – Finance Act, 2020, brought in a new tax regime with revised tax slabs. The new tax slabs are subject to conditions, such as non availability of claiming certain deductions. With a large number of Indian tax payers being classified as “salaried middle class”, the new tax slabs predominantly targets those individuals who are in employment. The notable factor in the Finance Act, 2020 is that the new tax slabs are an optional alternative to the old tax structure. Individual tax payers can opt for either of the tax slabs depending on their respective savings and investment behaviour. The new tax slabs does not provide for claiming certain exemptions and deductions pertaining to savings and investments. Therefore, this tax slab would fit the need of those individuals who do not exercise the habits of savings or investing.
Individuals who have chosen to direct their incomes into saving and investing schemes would find it favourable to remain under the old tax structure as it provides for claiming these savings and investment amounts as deductions. By giving individuals the option to opt for the tax structure that suits them the best, the revenue department of the Finance Ministry has carefully designed this Finance Act in order to make sure the exchequer does not lose out on revenue even if the rates on taxes are reduced. The Ministry of Finance, by introducing the new tax structure has advocated the idea of putting more money in the hands of the tax payers. However, this cannot be seen as a positive factor as the new tax structure will also discourage the idea of saving, security and investing, which, in turn, will affect the economy and the GDP of the country in the long run.
In conclusion, one can point out that the Government, in Budget 2020, aimed at making the fiscal system simpler. Ironically, now there will be two calculations that an individual must derive to seek the best option and this very fact has made the fiscal regime more complicated than any other erstwhile regimes.
Tax slabs for FY 2020-21 (Existing Tax Slabs) –
For resident individuals below 60 years of age –
| Taxable Slab | Income Tax Rate |
| Upto Rs.2,50,000 | Nil |
| Rs.2,50,001 to Rs.5,00,000 | 5% |
| Rs.5,00,001 to Rs.10,00,000 | 20% |
| Rs.10,00,001 & above | 30% |
For resident individuals between 60 & 80 years of age –
| Taxable Slab | Income Tax Rate |
| Upto Rs.3,00,000 | Nil |
| Rs.3,00,001 to Rs.5,00,000 | 5% |
| Rs.5,00,001 to Rs.10,00,000 | 20% |
| Rs.10,00,001 & above | 30% |
For resident individuals above 80 years of age –
| Taxable Slab | Income Tax Rate |
| Upto Rs.5,00,000 | Nil |
| Rs.5,00,001 to Rs.10,00,000 | 20% |
| Rs.10,00,000 & above | 30% |
Tax slabs for FY 2020-21 (Proposed Tax Slabs) –
For resident individuals –
| Taxable Slab | Income Tax Rate | |
| Below 60 Years | Above 80 Years | |
| Upto Rs. 2,50,000 | Nil | Nil |
| Rs. 2,50,001 to Rs. 5,00,000 | 5% | Nil |
| Rs. 5,00,001 to Rs. 7,50,000 | 10% | 10% |
| Rs. 7,50,001 to Rs. 10,00,000 | 15% | 15% |
| Rs. 10,00,001 to Rs. 12,50,000 | 20% | 20% |
| Rs. 12,50,001 to Rs. 15,00,000 | 25% | 25% |
| Above Rs. 15,00,0000 | 30% | 30% |
For resident individuals between 60 years & 80 years –
| Taxable Slab | Income Tax Rate |
| Upto Rs. 3,00,000 | Nil |
| Rs. 3,00,001 to Rs. 5,00,000 | 5% |
| Rs. 5,00,001 to Rs. 7,50,000 | 10% |
| Rs. 7,50,001 to Rs. 10,00,000 | 15% |
| Rs. 10,00,001 to Rs. 12,50,000 | 20% |
| Rs. 12,50,001 to Rs. 15,00,000 | 25% |
| Above Rs. 15,00,0000 | 30% |
• Health & Education Cess – 4%
• Section 87A Rebate: If the total taxable income is less than Rs. 5,00,000/- individual would not be required to pay any tax.
• The individual tax payer has the option to choose either old tax slabs or new tax slabs, whichever is beneficial.
Below are the 3 illustrations comparing for difference levels of income for the 2 tax regimes.
Illustration 1: Ms. Krushi having salary income of Rs. 7,50,000 & Bank Interest.
| Particulars | Option1: Old Tax Regime (Rs.) | Option 2: New Tax Regime (Rs.) | Remarks |
| Gross Salary | 7,50,000 | 7,50,000 | Option1: If Assessee opts for Old Tax rate regime, he/she will be able to continue claiming all exemptions / deductions as applicable to them |
| Less: Standard Deduction | (50,000) | – | |
| Less: Professional Tax | (2,400) | – | |
| Net Salary (A) | 6,97,600 | 7,50,000 | |
| Add: Interest on SB (B) | 12,450 | 12,450 | |
| Add: Interest on FD (C) | 15,000 | 15,000 | |
| Less: Interest paid on Home Loan (D) | (2,00,000) | Option 2 : If Assessee opts for New Tax rate regime, he/she will have to forego all deductions & exemptions. | |
| Gross Income (A+B+C+D) | 5,25,050 | 7,77,450 | |
| Less: Deductions under Chapter VIA | |||
| Section 80C – Investment in Life Insurance Premium, PF, PPF, NSC, SSY, KVP, ELSS, 5 year Tax Saver FD, Home Loan principal repayment, NPS, Tution Fees paid to School of Children etc., | (150,000) | ||
| Section 80D – Mediclaim Premium, preventive health checkup & medical expenditure of senior citizens. | (25,000) | ||
| Section 80TTA – Interest on Savings Bank | (10,000) | ||
| Net Taxable Income / Total Income | 3,40,550 | 7,77,550 | |
| Tax on above | 4,503 | 41,633 | |
| Less: Rebate u/s 87A | (4,503) | – | |
| – | 41,633 | ||
| Add: Health & Education Cess @ 4% | – | 1,665 | |
| Net Tax Payable | – | 43,298 | |
| Excess tax to be paid as per New Regime | – | 43,298 |
Illustration 2: Ms. Krushi having salary income of Rs. 10,00,000 & Bank Interest
| Particulars | Option1: Old Tax Regime (Rs.) | Option 2: New Tax Regime (Rs.) | Remarks |
| Gross Salary | 10,00,000 | 10,00,000 | Option1: If Assessee opts for Old Tax rate regime, he/she will be able to continue claiming all exemptions / deductions as applicable to them |
| Less: Standard Deduction | (50,000) | – | |
| Less: Professional Tax | (2,400) | – | |
| Net Salary (A) | 9,47,600 | 10,00,000 | |
| Add: Interest on SB (B) | 12,450 | 12,450 | |
| Add: Interest on FD (C) | 15,000 | 15,000 | |
| Less: Interest paid on Home Loan (D) | (2,00,000) | Option 2 : If Assessee opts for New Tax rate regime, he/she will have to forego all deductions & exemptions. | |
| Gross Income (A+B+C+D) | 7,75,050 | 10,27,450 | |
| Less: Deductions under Chapter VIA | |||
| Section 80C – Investment in Life Insurance Premium, PF, PPF, NSC, SSY, KVP, ELSS, 5 year Tax Saver FD, Home Loan principal repayment, NPS, Tution Fees paid to School of Children etc., | (150,000) | ||
| Section 80D – Mediclaim Premium, preventive health checkup & medical expenditure of senior citizens. | (25,000) | ||
| Section 80TTA – Interest on Savings Bank | (10,000) | ||
| Net Taxable Income / Total Income | 5,90,050 | 10,27,450 | |
| Tax on above | 30,510 | 80,490 | |
| Less: Rebate u/s 87A | – | – | |
| 30,510 | 80,490 | ||
| Add: Health & Education Cess @ 4% | 1,220 | 3,220 | |
| Net Tax Payable | 31,730 | 83,710 | |
| Excess tax to be paid as per New Regime | – | 51,980 |
Illustration 3: Ms. Krushi having salary income of Rs. 12,50,000 & Bank Interest
| Particulars | Option1: Old Tax Regime (Rs.) | Option 2: New Tax Regime (Rs.) | Remarks |
| Gross Salary | 12,50,000 | 12,50,000 | Option1: If Assessee opts for Old Tax rate regime, he/she will be able to continue claiming all exemptions / deductions as applicable to them |
| Less: Standard Deduction | (50,000) | – | |
| Less: Professional Tax | (2,400) | – | |
| Net Salary (A) | 11,97,600 | 12,50,000 | |
| Add: Interest on SB (B) | 12,450 | 12,450 | |
| Add: Interest on FD (C) | 15,000 | 15,000 | |
| Less: Interest paid on Home Loan (D) | (2,00,000) | Option 2 : If Assessee opts for New Tax rate regime, he/she will have to forego all deductions & exemptions. | |
| Gross Income (A+B+C+D) | 10,25,050 | 12,77,450 | |
| Less: Deductions under Chapter VIA | |||
| Section 80C – Investment in Life Insurance Premium, PF, PPF, NSC, SSY, KVP, ELSS, 5 year Tax Saver FD, Home Loan principal repayment, NPS, Tution Fees paid to School of Children etc., | (150,000) | ||
| Section 80D – Mediclaim Premium, preventive health checkup & medical expenditure of senior citizens. | (25,000) | ||
| Section 80TTA – Interest on Savings Bank | (10,000) | ||
| Net Taxable Income / Total Income | 8,40,550 | 12,77,550 | |
| Tax on above | 80,510 | 1,31,863 | |
| Less: Rebate u/s 87A | – | – | |
| 80,510 | 1,31,863 | ||
| Add: Health & Education Cess @ 4% | 3,220 | 5,275 | |
| Net Tax Payable | 83,730 | 1,37,137 | |
| Excess tax to be paid as per New Regime | – | 53,407 |
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