Income Tax Changes from FY 2020-21
It is well known that the income tax is levied on income, more the
income, more the tax payable. There are different slabs on which basis, the
income tax liability is computed in the hands of individuals of India. The
budget of the year 2020 revised the tax rates which will be applicable from FY
2020-21.
The new slabs are:
(i) Up to 2.5 Lacs – NIL (as earlier, no change);
(ii) From 2.5 Lacs to 5 Lacs – 5% (as earlier, the rebate of 87A
will make it NIL if the income is up to 5 Lacs).
(iii) From 5 Lacs to 7.5 Lacs – 10% (earlier it was 20%, however
if someone opts for 10% then he/she has to give up the exemptions and
deductions mentioned below).
(iv) From 7.5 Lacs to 10 Lacs – 15% (earlier it was 20%, however
if someone opts for 10% then he/she has to give up the exemptions and
deductions mentioned below).
(v) From 10 Lacs to 12.5 Lacs – 20% (earlier it was 30%, however
if someone opts for 10% then he/she has to give up the exemptions and
deductions mentioned below).
(vi) From 12.5 Lacs to 15 Lacs – 25% (earlier it was 20%, however
if someone opts for 10% then he/she has to give up the exemptions and
deductions mentioned below).
(vii) Above 15 Lacs – 30% (as earlier).
Health and Education Cess:
After applying these slabs and computing tax liability, it will be
required to levy 4% Health and Education Cess (as earlier, no change).
Which exemptions and deductions will have to be give up, if someone decides to opt new slab rates?
(a) Exemption on House Rent Allowance (HRA):
Most of the employees
claim exemption on HRA. In case, new tax slab rates are opted, the exemption of
HRA will not be provided.
(b) Exemption on Leave Travel Allowance:
It will not be available and
it will be fully taxable for the individuals opting new slab rates.
(c) Exemption in Children Education Allowance:
It will not be
available. Those who are taking Children Education Allowance if decides to
compute tax in new tax slab rates, their exemption on Children Education
Allowance will not be provided.
(d) Standard Deductions on Salary, House Property etc.:
It will not
be provided to the individuals who want to compute their tax liability with new
tax slab rates.
(e) No Exemption on ‘Interest on House Loan’:
The individuals taking
house loan for building or purchasing self occupied property are eligible to
get deduction on up to Rs. 2 Lacs of amount paid for Interest on House Property
and in case, the house is let out, the deduction has no limit while computing
income from House Property. But if an individual takes the new slab rates in
consideration, then there will be no deduction available for ‘Interest on House
Loan’.
(f) Deduction of Section 16:
The deduction under section 16 which is for entertainment allowance
and employment / professional tax will not be available for the individuals
opting new tax regime.
(g) Deduction on Family Pension:
It is presently allowed under
section 57 (iia) up to Rs. 15000 which will not be allowed if an individual
opts the new tax regime.
(h) Deductions for disability under section 80DD and 80DDB:
These are available
now but the individuals who decides to pay tax as per new tax regime, will not
allowed to claim these deductions.
(i) Deduction for Donations under section 80G :
It will also not be
available for those who opt for new tax regime.
(f) Deduction under section 80C, 80 CCD (1B), 80D, 80E etc.:
The
80C investments and savings will not provide any deduction however these
investments are still lucrative keeping in mind the state of economy and the
returns from the banking and post office instruments. Further, the medical
insurance premium paid and claimed under section 80D will also not be
available. However, the contribution by an employer in the account of EPF or
NPS up to Rs. 7.5 Lacs in a Financial Year will not be taxable in the hands of
employee.
However, deduction under section 80 CCD (1B) can be claimed on 10%
of (Basic Pay + Dearness Allowance) if contributed on behalf of employee in
Tier – I account of NPS. If contribution is made more than 10% then it will be
taxable in the hands of employee and no deduction will be provided on that part
of contribution in Tier-I account of NPS. To know how money grows in NPS account, kindly go through "How Money Grows in NPS"
The section 80CCD (2) will also remain available even if the new
tax regime is opted by the employee. It is deduction for employer’s
contribution in pension funds including NPS.
The deductions provided in Chapter VIA of the Income Tax Act i.e. like
section 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG,
80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc; will not be available
for the individuals opting for new tax regime.
*Copyright © 2020 Dr. Lalit
Kumar. All rights reserved.
This
article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. The
article was published on 1st September, 2021 and last updated on 4th
September, 2021. The writer can be contacted on lalitkumarsetia@gmail.com
