2020 Budget’s impact on total income and tax liability of individual
Budget 2020 has proposed a new tax regime by slashing income tax rates and changing
the income tax slabs. As announced in the new tax regime, 70 tax exemptions will be removed but the changed and new slab will be-
Income between Rs 5 lakh and Rs 7.5 lakh will be taxed at 10% down from current 20%,
Income between Rs 7.5 lakh and Rs 10 lakh will be taxed at 15% down from current 20%,
and Income between Rs 10 lakh and Rs 12.5 lakh will be taxed at 20% down from current 30%.
Income between Rs 12.5 lakh and Rs 15 lakh will be taxed at 25% down from current 30%.
Incomes above Rs 15 lakh in a financial year will continue to be taxed at 30%.
Budget 2020 has offered the taxpayers the option to choose between the existing income
tax regime (which allows availing existing income tax exemptions and deductions) and a
new tax regime with slashed income tax rates and new income tax slabs but no tax
exemptions and deductions.
Which tax regime -old or new–would be beneficial i.e. result in lower tax payable for each individual is likely to depend on his/her income composition and investments done. Each individual will have to do his/her own income calculations to figure out which tax regime is
more beneficial to him/her. For example, a person who has bought a long term life insurance policy may have to continue paying the premium and claiming the tax benefit on it.
Further as proposed in the Budget, as dividend income becomes taxable in your hands, your taxable income will increase. This will add to the uncertainty about how much tax relief an individual will get from all the budget proposals together.
New Income Tax Slabs – Budget gives option of lower income tax rates, new tax slabs minus 70 exemptions
Up to Rs 5 lakh – Nil
Rs 5,00,001 to 7,50,001 -Tax @10%
Rs 7,50,0001 to 10,00,000-Tax@ 15%
Rs 10,00,001 to 12,50,000-Tax @ 20%
Rs 12, 50,001 to 15,00,000-Tax@ 25%
Above Rs 15,00,000 -Tax@30%
Cess and surcharge on income tax payable in the new proposed personal tax regime remain the same as in the existing tax regime.
Old Income tax slabs and rates for Individual for FY 2019-20 (AY 2020-2021)
1-For individuals below 60 years of age for FY 2019-20)
Taxable income slabs Income tax rates and cess
Up to Rs 2.5 lakh Nil
Rs 2,50,001 to Rs 5,00,000 -tax @5% of (Total income minus Rs 2.5 lakh) + 4% cess
Rs 5,00,001 to Rs 10,00,000 -12,500 + tax@20% of (Total income minus Rs 5 lakh) + 4% cess
Rs 10,00,001 and Above 1,12,500 + tax@30% of (Total income minus Rs 10,00,000) + 4% cess
Income tax slabs and rates for senior citizens (Age between 60 years and 80 years)
Taxable income slabs Income tax rates and cess
Up to Rs 3 lakh Nil
Rs 3,00,001 to Rs 5,00,000 – tax@5% of (Total income minus Rs 3 lakh) + 4% cess
Rs 5,00,001 to Rs 10,00,000- 10,000 + tax@ 20% of (Total income minus Rs 5 lakh) + 4% cess
Rs 10,00,001 and Above -1,10,000 + tax@ 30% of (Total income minus Rs 10,00,000) + 4%cess
Income tax slabs and rates for super senior citizens (Age 80 years and above)
Taxable income slabs Income tax rates and cess
Up to Rs 5,00,000 – Nil
Rs 5,00,001 to Rs 10,00,000 – tax@ 20% of (Total income minus Rs 5 lakh) + 4% cess
Rs 10,00,001 and Above – 1,00,000 + tax@ 30% of (Total income minus Rs 10,00,000) + 4% cess
The effective tax rate for individuals with taxable income up to Rs 5 lakh would be nil under both the new and the existing tax regime because under old slab, individual would be able to avail the tax-benefit of rebate up to Rs 12,500 under Section 87A which is equal to 5% tax rate on (250001 to 500,000)
It must be noted that finance minister, Piyush Goyal, during the interim Budget in February 2019, announced a tax rebate of up to Rs 12,500 if net taxable income does not cross Rs 5 lakh. Thereby, making zero tax payable by an individual if his/her taxable income does not exceed Rs 5 lakh.
Health and education cess at the rate of 4 percent is levied on the income tax plus surcharge wherever applicable. Surcharge on income tax will also be added as per the income slab applicable to the individual.
Surcharge will be added to the total income tax payable by the individual as follows:
10% for income between Rs 50 lakh and Rs 1 crore,
15% for income between Rs 1 crore and Rs 2 crore,
25% for income between Rs 2 crore and Rs 5 crore and
37% for income exceeding Rs 5 crore.
Note: However, on short-term capital gains as per section 111A and long-term capital gains as per section 112A, a surcharge of 15% will be applicable instead of 25% or 37% as mentioned above.
