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Your Income Tax Guide for 2020

Feb 06, 2020 | 5 months ago | Read Time: 4 minutes | By iKnowledge Team
Income Tax Guide for 2019-20

Filing season is later in the year but it’s never too late to refer to 2020’s income tax guide. More and more Indians have started paying income tax in the last few years. From 2013 to 2017, the number of people filing returns rose by 65%.

The sooner you refer to tax slab for 2019 and its exceptions, the earlier you can begin investment planning. Here is your income tax guide for 2020.

The Basics of Income Tax

Anyone who earns an income in India (resident or non-resident) is subject to paying income tax. Residents pay income tax on their global income (income in India and income earned abroad). Non-residents are only required to pay income tax on their income earned in India.

The income earned could be through one’s monthly salary, or through a savings or pension plan for retired individuals. Besides these two streams, the Income Tax Department breaks down the income one receives from three additional sources.

There is the income that comes in from renting out one’s property, and from capital gains in mutual funds, real estate, and other asset classes. The final income stream is from being self-employed in the case of personal business owners or freelancers. Income tax is on the total amount one earns from one or any combination of these sources.

Whether your income is taxable or not is found out by looking at the tax slab for that year put out by the Income Tax Department. A tax slab or tax bracket groups one’s gross annual income. The three criteria are your income range, the tax rate on that range, and the percentage you have to pay in taxes. The higher the income, the more tax paid.

Here’s the taxation regime for 2020-21

For the year 2020-21, Finance Minister Nirmala Sitharaman announced a new optional system of taxation with reduced income tax rates. The new system of taxation shall exist alongside the old system. Individual taxpayers are free to choose the scheme of taxation where they obtain the most benefits. The new regime differs from the old scheme in two primary areas.

  • It offers reduced tax rates.
  • Around 70 of the existing 100 existing exemptions/deductions have been scrapped under the new tax rules.

So, taxpayers opting for the new system of taxation may enjoy reduced tax rates, but they will be required to forego several exemptions/deductions. This new taxation scheme shall be valid from the financial year 2020-21.

Here are the tax slabs for 2020–2021.

Income per annum Tax Rate
₹0-₹5 lakhs Exempt
₹5 lakhs-₹7.5 lakhs 10%
₹7.5 lakhs-₹10 lakhs 15%
₹10 lakhs-₹12.5 lakhs 20%
₹12.5 lakhs-₹15 lakhs 25%
Above ₹15 lakhs 30%

On the other hand, if taxpayers opt for the old taxation regime, the old set of higher rates would be applicable, and they would be able to enjoy the same amount of deductions and exemptions as before.

Exceptions in the tax slab

Exceptions to the tax slab, if taxpayers go for the old regime

Most exceptions to income tax, based on recent amendments to the ITA, are on capital assets like mutual funds, equities and even on loans. For capital gains, the tax benefits are dependent on the type of asset, and the holding period. Start your investment planning by considering these exceptions to the tax slab.

  1. Investments: Investing in mutual funds through equity-linked saving schemes (ELSS) can be claimed for tax deduction under Section 80C.

Another option is Fixed deposits (FDs) where the amount that is locked for 5 years is not subject to income tax.

Public Provident Funds and the National Savings Certificate are other tax-free investment options.

  • Insurance: Life insurance and Health or medical insurance qualify for tax deductions under Section 80D of the ITA.

Investments in Unit Linked Insurance Plans (ULIPs) are also eligible for tax deductions. ULIPs have the dual benefit of being a savings plan with market-linked investments.

  • Loans: When taking a loan on a house (Section 80EE), for your children’s education (Section 80E), you are eligible to avail income tax deductions.

Important Deadlines

Important Deadlines

When availing tax deductions, submitting proof of investments begins 6 months prior to actually filing claims. Don’t miss these income tax deadlines in 2020.

Things to Do Date
Submit your proof of investments 31/01/2020
Make investments eligible under ITA’s Section 80C 31/03/2020
File your Income-tax returns 31/07/2020
Verify your tax returns 31/11/2020

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