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The Union Finance Minister has presented the budget for the Financial Year 2020-2021. A new regime is introduced in the budget 2020-2021. These changes will have an impact on the income tax calculations w.e.f April 2020.

Based on the new budget, taxpayers (employees) can now select between the old regime and the new regime to calculate income tax. The old regime has older tax rates and exemption components as in the previous financial year. The new regime will have lower tax rates and a few numbers of exemptions.

The tax slab rates as per the Old and New regime are as follows:

Income Tax Slabs

Old Regime

New Regime

Surcharge Rate

₹0 - ₹2.5 lakh 

exempted

exempted

0

₹2.5 lakh - ₹5 lakh

5%

5%

0

₹5 lakh - ₹7.5 lakh

20%

10% 

0

₹7.5 lakh - ₹10 lakh

20%

15%

0

₹10 lakh to ₹12.5 lakh

30%

20%

0

₹12.5 lakh - ₹15 lakh

30%

25%

0

₹15 lakh - ₹50 lakh

30%

30%

0

₹50 lakh - ₹1 crore

30%

30%

10

₹1 crore - ₹2 crore

30%

30%

15

₹2 crore - ₹5 crore

30%

30%

25

₹5 crores and Above

30%

30%

37

Under the old regime, taxpayers will continue to enjoy the same benefits and deductions as before. Under the new regime, tax rates are lower than before, provided taxpayer let goes of the following exemptions and deductions:

  • Under section 16 - Standard Deductions, Entertainment allowances, Employment/ Professional tax.
  • House Rent Allowance (HRA)
  • All chapter VIA section - 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EEA, 80EEB, 80G etc {Excluding Section 80CCD(2)}
  • Leave Travel Concession (LTA)
  • Under section 10(14) - Special Allowance such as Children education allowance, Hostel Allowance, Transport Allowance, Uniform Allowance, etc
  • Under section 24 - Interest on borrowed loan for a self-occupied property.

  • Set off of any loss, under the head “Income from house property” with any other head of income.

Similarities in Old and New Regime

The following calculations are common for both the old and new regime:

  • Rebate under the section 87A: Taxpayers who have an annual income up to Rs 5 lakh, will continue to get a tax rebate of Rs 12,500 on the tax calculated.
  • Health, Education Cess, and Surcharge Rates remain the same.

Tax Comparison Examples: Old and New Regime

To understand the difference between the calculations of old and new regime, we have provided two examples. The first example shows income tax calculation if the taxpayer has made certain investments and the second example shows income tax calculation if the taxpayer has not made any investment.

Scenario 1: Assume that taxpayer has invested in 80C, 80D and have HRA. Tax under both regimes will be calculated as follows:


Old Regime Calculation

New Regime Calculation

Gross Income

850000

850000

Tax on Employment: Sec 16(iii)

2400

0

Standard Deduction: Sec 16(ia)

50000

0

House Rent Allowance: Section 10(13A)

100000

0

Leave Travel Assistance: Sec. 10(5) 

60000

0

80C exemption

150000

0

80D exemption

25000

0

Taxable Income

462600

850000

Calculated tax

10630

52500

Rebate u/s 87A

10630

0

Net tax + Cess

0

54600

Scenario 2: Assume that the taxpayer has not done any investments. Tax under both regimes will be calculated as follows:


Old Regime Calculation

New Regime Calculation

Gross Income

850000

850000

Tax on Employment: Sec 16(iii)

2400

0

Standard Deduction: Sec 16(ia)

50000

0

Taxable Income

797600

850000

Calculated tax

59520

52500

Rebate u/s 87A

0

0

Net tax + Cess

61901

54600

Additional Changes in Budget 2020-2021

Others Changes introduced in Budget 2020-2021:

  1. Section 80EEA extended: Loan date is extended from 31st March 2020 to 31st March 2021. An individual can claim additional interest of Rs.1.5 Lac (over and above existing Rs. 2 Lac), if the individual has taken a loan between 1st April 2019 and 31st March 2021.
  2. If the Employer’s contribution towards PF, NPS or any recognised superannuation exceeds INR 7,50,000 per annum, the excess amount would be treated as perquisite and will become taxable.

To know more, click here to find a copy of the finance bill.



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