The Finance Minister, Nirmala Sitharaman, recently announced the Budget 2020, making way for the new tax regime. The income slabs have widened when you compare it to the old slabs but for that taxpayers will have to give up on the exemptions and deductions. So, let’s look at the changes occurred due to the Budget 2020.
|Income Tax Slab||Tax Rate|
|Up to Rs 2.5 lakh||Exempt|
|Rs 2.5 lakh to Rs 5 lakh||5% of the total income which is more than the tax slab|
|Rs 5 lakh to Rs 7.5 lakh||10% of the total income which is more than the tax slab|
|Rs 7.5 lakh to Rs 10 lakh||15% of the total income which is more than the tax slab|
|Rs 10 lakh to Rs 12.5 lakh||20% of the total income which is more than the tax slab|
|Rs 12.5 lakh to Rs 15 lakh||25% of the total income which is more than the tax slab|
|Rs 15 lakh and above||30% of the total income which is more than the tax slab|
Under the new tax regime, the income tax slabs have broadened, lessening the tax applicable on the taxpayer’s income. There are some income tax deductions and exemptions that you cannot claim if you choose the new tax slabs which are:
- Leave Travel Allowance (LTA)
- House Rent Allowance (HRA)
- Standard deduction
- House loan interest
- Deductions under Section 80C
- Deductions under NPS
- Health insurance premium under Section 80D
- Interest on savings account
- Interest on education loan
- Deductions under disability tax provision
There are some tax exemptions that have not been changed or scrapped off in the Budget 2020. Some of them are:
- Standard deduction under on rent
- Income from agriculture
- Voluntary Retirement Scheme (VRS) proceeds
- Encashment of leaves on retirement
- Life insurance income
If taxpayers are finding it difficult to calculate the tax payable under the new tax regime, there are numerous websites providing you with a tax calculator to help you choose between the two tax systems. Also, the Income Tax Department has launched a tax calculator to understand the tax liability under the new income slabs.
If you still are confused about what to do, the answer is very simple. Taxpayers claiming income tax deductions and exemptions of more than INR 2.5 lakh in a year will not benefit much from the new tax structure. Let’s understand this number INR 2.5 lakh in detail. INR 2.5 lakh includes the standard deduction of INR 50,000 leaving only INR 2 lakhs. Under Section 80C, you get an income tax deduction of INR 1.5 lakhs by investing in various instruments. Other exemptions like HRA, LTA, the interest on home loan, education, etc. account for the remaining amount.
So, if you do not have as many deductions and exemptions to claim, the new income slab with lesser taxes can be a lucrative option that you can opt for.