Budget 2020: Changes in income tax slabs or rates for individuals

Budget 2020 has introduced a new tax regime with reduced rates in the tax slabs. Here in this article, let’s see the revised rates of the new tax regime for the individuals.

The new income tax slab is supposed to be a simplified tax regime where individuals opting for this income tax slab has to let go the tax deductions and exemptions. However, the individual has an option to choose between the new tax regime or the old tax regime.

Given below is the new tax slab rates as compared to the old tax slab rates:

Total Income New income tax slab rates Old income Tax Slab rates
Up to 2.5 Lakh Nil Nil
2.5 Lakh – 5 Lakh 5% 5%
5 Lakh – 7.5 Lakh 10% 20%
7.5 Lakh – 10 Lakh 15% 20%
10 Lakh – 12.5 Lakh 20% 30%
12.5 Lakh- 15 Lakh 25% 30%
15 Lakh and above 30% 30%

Surcharge and cess for both old and the new regime remain the same.

Individuals who choose to pay with the new tax regime have to let go 70 deductions, few of such are mentioned below

  • Standard deduction on the salary of Rs. 50,000
  • HRA compensation investments under Section 80C
  • Exemption on home loan interest
  • Leave travel allowance
  • NPS contribution
  • The premium on Medical Insurance
  • Exemption of Rs 10,000 under Section 80TTA on savings bank interest
  • Section 80TTB – interest income for senior citizens
  • Education loan interest that is paid for 8 consecutive interest
  • Disability benefits of Rs.75,000 to Rs.1.25 lakh on self or of dependent
  • Treatment of dependent or of self for specific disease Rs. 40,000 and 1 Lakh for Senior Citizens
  • Donations to different entities

Here are the exemptions that can be availed in the new tax regime

  • Income from life insurance can be claimed if the insurance claim is 10 times the annual premium
  • VRS proceeds of 5 lakhs can be claimed
  • Leave encashment of 3 lakhs on retirement, no limit in case of government employees
  • VRS Proceeds of 5 Lakhs
  • 30% per cent of the income received from the rent as the standard deduction
  • No income on the agricultural income

Additionally, individuals having a net taxable income of 5 lakhs will get a rebate of Rs.12,500 under Section 87A for both the old and the new tax regime.

Benefits to senior citizens or super senior citizens

If seniors or super senior citizens are choosing for the new tax regime, then they would not get the benefit of higher tax exemption as in case of old income tax slabs.

In the case of the old tax regime, the exemption limit for the senior citizens were 3 lakhs while in case of super senior citizens is 5 lakhs. In the case of the new tax regime, the exemption limit for the senior citizens and the super senior citizens remains to be same that is 2.5 lakhs.

Conclusion 

The new tax proposals will come into effect from April 1st of the financial year 2020-2021. Those who do not wish to shift to the new tax regime can continue with the old one while those willing to take up the new regime can opt this in this financial year.

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