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Income Tax Slab Rates FY 2020-21(AY 2020-21)

Mar 11, 2020 | 3 weeks ago | Read Time: 7 minutes | By iKnowledge Team

What is Income Tax Slab?

An Income tax slab is a particular level of income which is taxed at a particular rate. It divides a taxpayer’s income into different parts and taxes them differently.

Income Tax in India is structured to be progressive. What this means is that a higher level of income will bear a higher proportion of taxes, thus reducing the collective burden on people who do not earn as much. The Income Tax Act recognizes that

1. All incomes are not created equal, for example, lottery winnings are not taxed the same way as interest income

2. All taxpayers are not created equal, for example, a taxpayer with ₹ 50 lakh of income should not be taxed the same way as a person with ₹  1 lakh of income.

To help rationalize the impact of taxation on people who do not earn enough, there are income tax slabs in India. By setting an income tax slab, the act ensures that people who do not have a particular level of income do not pay tax, and those with a higher income are taxed accordingly. However, it is to be noted that all institutional setups like partnerships, limited liability partnerships, public, private, and one-person companies, trusts, institutions etc. all command a flat rate of income tax i.e. either 25% or 30%.

Get to know the basics like a financial year, income tax slabs, income declaration, and more before you file your returns.

Tax compliance in the country has seen a rise in the recent past due to rising incomes. Despite this welcome change, statistics show that less than 2% of Indians pay their taxes. So, why paying your taxes is so important? When citizens pay their taxes, it aids in the social and economic progress of a country. Most people are unaware of the basics of income tax, why to pay, and how to pay income tax.

11 Things on the income tax slab that every taxpayer must be aware of:

1. The difference between a financial year and assessment year

In a financial year, you earn an income and the year starts on the 1st of April and ends on the 31st of March. The assessment year is the year after the financial year. For instance, if your financial year began from 1st April 2019 and ended on 31st March 2020, the assessment year will start from 1st April 2020 and end on the 31st of March 2021. Make sure that you enter the correct year while filing your tax returns or making the payment of challan.

2. Income Tax Slab FY 2020 – 21: What income tax slab you fall under

In Budget 2020, Finance Minister Nirmala Sitharaman introduced an optional income slab structure for individual taxpayers below the age of 60. This new slab structure will coexist with the existing tax regime. As per the new tax system, individual taxpayers can choose to file their income tax under either of the two slab structures.

This new slab structure reduces the tax liability of individuals by lowering the applicable tax rates. However, individuals choosing the optional tax regime will not be able to claim nearly 70 exemptions available under the old tax system, including exemptions under Section 80C.

You can benefit from this new construct as per your income and investment & spending. In case you have several investments and approved spending that qualifies for tax exemptions under the existing sections, you can opt to file your income tax under the old regime. If you have limited investments that are eligible for tax exemptions, you can opt for the alternative tax regime to reduce your tax liability.

The following table shows the distinction between the two income slab structures.

Total Income (in Rs.) Tax rates as per the new slab structure Tax rates as per the existing slab structure
Up to Rs. 2,50,000 Nil Nil
Rs. 2,50,000 to Rs. 5,00,000 Nil 5%
Rs. 5,00,001 to Rs. 7,50,000 10% 20%
Rs. 7,50,001 to Rs. 10,00,000 15% 20%
Rs. 10,00,001 to Rs. 12,50,000 20% 30%
Rs. 12,50,001 to Rs. 15,00,000 25% 30%
Rs. 15,00,000 and above 30% 30%

Following are a few examples of tax calculation for resident/non-resident individuals as per the old tax regime.

Income Tax Slab FY 2020-21 for a resident taxpayer below 60 years of age with an income of ₹ 15,00,000

Income tax Slab Tax Rate Tax Payable
0 to 2,50,000 0% 0
2,50,000 to 5,00,000 5% 12,500
5,00,000 to 10,00,000 20% 1,00,000
10,00,000 and above 30% 1,50,000

Total income tax payable: ₹  2,62,500

Income Tax Slab FY 2020-21 for a resident taxpayer who is 65 years of age with an income of ₹ 15,00,000

Income Tax Slab Tax Rate Tax Payable
0 to 3,00,000 0% 0
3,00,000 to 5,00,000 5% 10,000
5,00,000 to 10,00,000 20% 1,00,000
10,00,000 and above 30% 1,50,000

Total tax payable: ₹  2,60,000

Income Tax Slab FY 2020-21 for a resident taxpayer who is 82 years of age with an income of ₹ 15,00,000

Income Tax Slab Tax Rate Tax Payable
0 to 5,00,000 0% 0
5,00,000 to 10,00,000 20% 1,00,000
10,00,000 and above 30% 1,50,000

Total tax payable: ₹  2,50,000

Income Tax Slab FY 2020-21 for a non-resident taxpayer who is 35 years of age with an income of ₹ 15,00,000

Income Tax Slab Tax Rate Tax Payable
0 to 5,00,000 0% 0
5,00,000 to 10,00,000 20% 1,00,000
10,00,000 and above 30% 1,50,000

Total tax payable: ₹2,50,000

The no-tax limit or the basic exemption limit for non-residents is ₹2,50,000 irrespective of their age.

This is in addition to the surcharge that is 10% of tax where the total income exceeds Rs. 50 lakhs and 15% of tax if the total income exceeds Rs. 1 crore. As for Education Cess (EC) and Secondary and Higher Education Cess (SHEC): 3% of tax plus surcharge.

Note: An individual is entitled to rebate u/s 87A if his/her total income does not exceed Rs. 5,00,000. The amount of rebate shall be 100% of income tax or Rs. 12,500, whichever is less.

Apart from the income tax that has to be paid on the income, a secondary and higher secondary education cess also has to be paid. This education cess is currently charged at 4% of the tax payable. This is over and above the total tax payable for the taxpayer.

Another point to be noted is a surcharge. The surcharge is payable by people earning a high level of income. For people with income above ₹50 lakhs but less than ₹1 crore, the surcharge is 10%. If a taxpayer’s income exceeds ₹1 crore, the surcharge is 15%. In this case, the education cess is paid on the total tax comprising of tax and surcharge.

3. How to use form 26A

Examine Form 26 AS online to check the tax deducted or advance tax paid from other incomes. Any tax on salary can be checked from Form 16 provided by your employer. Any mismatch could lead to a notice from the tax authorities.

4. Verify your ITR

After filing your income tax return every year, you need to verify your ITR. There are two ways to verify your ITR: manually and electronically. You can verify the ITR electronically through net banking and by using Aadhaar OTP. You can also do it manually by sending ITR-V to CPC Bangalore.

5. Disclose assets over Rs. 50 lakhs

If you are a taxpayer earning over Rs 50 lakhs, you must disclose your financial assets. This includes both movable and immovable assets.

6. Disclose your foreign assets and income

Disclose the details of your foreign assets as well as other related information. This includes foreign bank account opening date, the interest you accrued during the year, etc.

7. Add income from the previous employer

If you are transitioning from one job to another, make sure you provide the information about your previous employer to the new employer. If you forget to do this, it may increase tax liability.

8. Pay any advance taxes

If your estimated tax liability after TDS is Rs. 10,000 or more, you are required to pay advance tax. You are required to pay this tax in instalments during the year by all individuals and corporate taxpayers.

9. Include interest from FDs (26AS)

FDs are taxable, so you must include interest from tax-saving FDs and other FDs. Keep in mind that you must include this income in your 26AS for tax compliance.

10. Deductions under Section 80C to 80U

FDs are taxable, so you must include interest from tax-saving FDs and other FDs. Keep in mind that you must include this income in your 26AS for tax compliance. 

It is to be noted that the total taxable income is calculated after taking benefit of all the deductions under Section 80C to 80U. It is possible for a taxpayer to utilize these deductions and reduce his taxable income and consequently even reduce the tax slab that he is falling under.

The maximum deductions available under a few sections are as follows:

  • Section 80C to 80CCC: ₹ 1,50,000
  • Section 80CCD: ₹ 50,000
  • Section 80D: ₹ 30,000 for self, spouse and children, ₹30,000 for parents, ₹50,000 for senior citizens
  • Section 80DD: ₹ 75,000 for disabled dependent or ₹1,25,000 for severely disabled dependent
  • Section 80DDB: ₹ 75,000 or ₹  1,00,000 for senior citizen taxpayers
  • Section 80TTA: ₹ 10,000
  • Section 80TTB: ₹ 50,000
  • Section 80U: ₹ 75,000 for disability and ₹  1,25,000 for severe disability

By taking advantage of these deductions, you can bring down your taxable income. One very common way of availing deductions is to invest in different products such as life insurance, public provident fund, employee provident fund, senior citizen saving scheme, national saving certificate etc. You can get a deduction for life insurance premium paid for self, spouse, and children. For example, you can invest in term insurance plans and get a comprehensive term policy for yourself, including health and disability riders.  The term insurance premium will get a deduction under Section 80C while the health and disability term insurance rider gets a deduction under Section 80D. This way, you can ensure your life and protect your family and also save income tax in the process.

11. Original documents unnecessary

You don’t have to submit any original documents to the IT department. You just need to keep the documents in case you are asked to furnish them later.

Conclusion

Income tax slabs ensure the right people get taxed in the country and people with a higher income-generating capacity bear a higher burden for nation-building. Following the above guidelines while filing returns can prevent discrepancies. Failing to do so could lead to notices from the IT department.

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