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Income Tax Slabs in India

Highlights

  • 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 2021 in Parliament today. As far as income tax slabs are concerned, she has not proposed any changes in the same. So, slabs remain the same as were announced in the last year’s budget.

Last year. she announced a slew of income tax concessions for individuals across different slabs. The slabs were restructured from INR 5 lakh onward.  But these rate changes are OPTIONAL. So if you don’t go for optional rates, old rates will continue to apply. Check out the table below to understand the concept better.

Old Income Tax Slabs ( Pre-Budget 2020)Tax 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 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 optional tax rate for individuals will be NIL for individuals earning upto INR 5 lakh a year. All those earning above INR 5 lakh will be taxed as per the slab shown in the table.

The reduced tax rates announced in Union 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. The proposed slabs in the Union Budget 2020 are purely optional as told above. Now that sets the game delicately poised for taxpayers. To make an opinion on the changes made, check the calculations carefully and see which helps you save more.

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Assume you earn INR 10 lakh in a year. How will the optional tax regime pan out for you compared 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. We have not considered different tax deductions/exemptions that are given under different sections of the Income Tax Act. If we include that under the regular tax slabs, maybe you’ll pay less tax or even zero tax.

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Note – While presenting the budget, the finance minister has announced that interest on employee contribution to PF over INR 2.5 lakh a year will now be taxable. Further, it has announced that pensioners aged above 75 years will be exempted from filing Income Tax Returns.

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