Income Tax Slab FY 2020-21 Post Budget 2020

In order to simplify the tax filing system and boost consumption, Finance Minister Nirmala Sitharaman introduced a slew of personal income tax rate cuts and brand new income tax slabs. These rate cuts will primarily be a huge source of relief to middle-class taxpayers.

The Finance Minister’s approach to the direct tax code was to provide taxpayers with the option to choose which taxation system suits them better. They can either opt for the old taxation regime of 2019-20 and avail the same amount of deductions and exemptions as they did before. Alternatively, they have the option to opt for the new reduced tax rates and avail a limited amount of deductions. This new tax regime, the Finance Minister announced, has scrapped about 70 income tax exemptions which are still available to taxpayers if they follow the old system.

To understand the taxation system in detail, first, we take a look at the existing Income Tax slabs of FY 2019-20.

Income slab (In Rupees)	Individuals below 60 years of age	Senior citizens between 60 and 80 years of age	Senior citizens over 80 years of age
Income tax rates	Income tax rates	Income tax rates
Up to Rs. 2,50,000	Nil	Nil	Nil
Rs. 2,50,000 to Rs. 3,00,000	5%	Nil	Nil
Rs. 3,00,000 to Rs. 5,00,000	5%	5%	Nil
Rs. 5,00,000 to Rs. 10,00,000	20%	20%	20%
Rs. 10,00,000 and above	30%	30%	30%

Here’s what the new tax slabs look like as per the Finance Minister’s announcement on 1st February:

Income slab (in rupees)	Tax rate as per the new scheme
0 to 2,50,000	Nil
2,50,001 to 5,00,000	5%
5,00,001 to 7,50,000	10%
7,50,001 to 10,00,000	15%
10,00,001 to 12,50,000	20%
12,50,001 to 15,00,000	25%
Above 15,00,000	30%

These rates will be applicable to individuals who will give up all the exemptions and deductions prevailing under the income tax laws.

If an individual chooses to pay income tax under this new tax regime, he/she will have to forego the following:

• 80C exemption

• 80D exemption

• LTC allowance

• HRA allowance

• Professional tax cut

• Interest on Property

Although, post budget 2020 it may seem like this new tax system doesn’t have many benefits because it has done away with several income tax exemptions that taxpayers usually bank upon to save their taxes; there is reason to believe that this new regime will be favored by the middle class taxpayers.

For instance, a person earning less than Rs. 15 Lakhs annually, will straight away get an additional benefit of Rs. 75,000 under this new tax system, which will in turn boost his consumption power. Thus, it’s apparent that the Government wants to encourage consumption among middle-class tax payers in order to drive growth for the Indian economy.

Conclusion

The new tax slabs will give taxpayers the freedom to decide for themselves which taxation regime can further lower their tax burden and help them save more money. Moreover, the new personal income tax rates will help boost the consumption power of the end consumer. Consequently, this will help pull the lagging economy out of its slump and help India meet its ambitious target of becoming a $5 trillion economy by the year 2025. Even though expectations were high at the taxpayers’ end, we can confidently say that they have been more or less been met.