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Income Tax Rates in India

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  • Optional new income tax slabs announced with reduced tax rates
  • How much will it benefit you? Check out here!

Finance Minister Nirmala Sitharaman has presented the much-awaited Union Budget 2020 intending to increase income and boost purchasing power. In that direction, she announced a slew of income tax cuts for individuals earning across different slabs. Interestingly, the slabs have been restructured from INR 5 lakh onward. You can check out the difference in slabs before and after Union Budget 2020.

Old Income Tax SlabsTax RateOptional New Income Tax SlabsTax Rate
Upto INR 2,50,000NILUpto INR 2,50,000NIL
Between INR 2,50,000 - INR 5,00,0005%Between INR 2,50,000 - INR 5,00,0005%
Between INR 5,00,000 - INR 10,00,00020%Between INR 5,00,000 - INR 7,50,00010%
Above INR 10,00,00030%Between INR 7,50,000 - INR 10,00,00015%
Between INR 10,00,000 - INR 12,50,00020%
Between INR 12,50,000 - INR 15,00,00025%
Above INR 15,00,00030%

Few Notes to Keep in Mind

  • The tax rate shown in the table for Pre-Budget 2020 is for those having income above INR 5 lakh post eligible tax deductions. If the income after deductions remains INR 5 lakh and below, there won’t be any tax.
  • The tax rate for individuals Post-Budget 2020 will be NIL for individuals earning upto INR 5 lakh a year. All those earning above 5 lakh will be taxed as per the slab shown in the table.

The reduced tax rates post-budget 2020 look exciting. But there’s a twist to it! What’s that?? Well, you need to sacrifice as many as 100 tax exemptions under various sections of the Income Tax Act, including 80C. Before you disappoint hearing the loss of these exemptions, let us tell you that the proposed slabs in the Union Budget 2020 are purely optional. Now that sets the game delicately poised for taxpayers. To make an opinion on the changes made, you need to check the calculations carefully and see which helps you save more.

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Assume you earn 10 lakh in a year. How will the optional tax regime pan out for you in comparison to the conventional one? Let’s find out.

Tax Payable with Regular Income Tax Slabs

Regular Income Tax SlabsTax
Annual IncomeINR 10,00,000
Standard DeductionINR 50000
Taxable Income INR 9,50,000
Upto INR 2,50,000NIL
Above INR 2,50,000 - INR 5,00,0005% of (INR 5,00,000 - INR 2,50,000) = INR 12,500
Above INR 5,00,000 - INR 9,50,00020% of (INR 9,50,000 - INR 5,00,000) = INR 90,000
Total Tax Payable Including 4% Education CessINR 1,02,500 + 4% of INR 1,02,500 = INR 1,06,600

Tax Payable with Optional New Income Tax Slabs

Optional Income Tax SlabsTax
Annual IncomeINR 10,00,000
Standard DeductionNIL
Taxable IncomeINR 10,00,000
Upto INR 2,50,000NIL
Above INR 2,50,000 - INR 5,00,0005% of (INR 5,00,000 - INR 2,50,000) = INR 12,500
Above INR 5,00,000 - INR 7,50,00010% of (INR 7,50,000 - INR 5,00,000) = INR 25,000
Above INR 7,50,000 - INR 10,00,00015% of (INR 10,00,000 - INR 7,50,000) = INR 37,500
Total Tax Payable Including 4% Education CessINR 75,000 + 4% of INR 75,000 = INR 78,000

Note – Standard deduction of INR 50,000 is assumed to be absent in the optional tax regime. As and when we get new information, we will update the calculation accordingly.

As per the calculations, optional tax slabs do show a savings of INR 28,600 (1,06,600-78,000) over the regular one. But that does not mean you should jump to the conclusion yet. The savings you see is purely because of not claiming tax deductions under different sections, such as 80C, of the Income Tax Act. However, if we take those deductions under the regular tax slabs, maybe you’ll pay less tax or even zero tax.

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