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Union Budget 2020 – Tax Rates Cut Across Slabs – But Will You Gain from it?


  • Union Budget 2020 - Optional 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 ₹5 lakh onward. You can check out the difference in slabs before and after Union Budget 2020.

Pre-Budget 2020Tax RatePost-Budget 2020Tax Rate
Upto 2,50,000NILUpto 2,50,000NIL
Between 2,50,000-5,00,0005%Between 2,50,000-5,00,0005%
Between 5,00,000-10,00,00020%Between 5,00,000-7,50,00010%
Above 10,00,00030%Between 7,50,000-10,00,00015%
Between 10,00,000-12,50,00020%
Between 12,50,000-15,00,00025%
Above 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 ₹5 lakh post eligible tax deductions. If the income after deductions remains ₹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 ₹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 Income10,00,000
Standard Deduction50000
Taxable Income 9,50,000
Upto 2,50,000NIL
Above 2,50,000-5,00,0005% of (5,00,000-2,50,000) = 12,500
Above 5,00,000-9,50,00020% of (9,50,000-5,00,000) = 90,000
Total Tax Payable Including 4% Education Cess1,02,500+4% of 1,02,500 = 1,06,600

Tax Payable with Optional Income Tax Slabs

Optional Income Tax SlabsTax
Annual Income10,00,000
Standard DeductionNIL
Taxable Income10,00,000
Upto 2,50,000NIL
Above 2,50,000-5,00,0005% of (5,00,000-2,50,000) = 12,500
Above 5,00,000-7,50,00010% of (7,50,000-5,00,000) = 25,000
Above 7,50,000-10,00,00015% of (10,00,000-7,50,000) = 37,500
Total Tax Payable Including 4% Education Cess75,000+4% of 75,000 = 78,000

Note – Standard deduction of ₹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 ₹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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