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TAX REGIME for the FY 2019-20 and FY 2020-21, Benefits available for taxpayers

 

After announcing Budget 2020 by Nirmala Sitaram, Finance Minister, people are not able to balance the options to choose the tax regimes. What is difference in new and old tax regimes? do the tax rates really have cut down?. The Answer may be "yes", But on the other side it seems that taxes in new tax regime are being collected in a way by showing you low tax rates in one hand and taking all your benefits from the other hand.

Few people are confused about changes in tax regime of FY 2019-20 and by seeing budget 2020; people like me were still confused whether what rates are applicable and what benefits were provided for FY 2019-20. I have studied well about tax regime of FY 2019-20 and FY 2020-21 and I will explain key points with examples.

What are Slab rates for FY 2019-20 and what benefits are available

Now I will explain about slab rates of Individuals for FY 2019-20 with few basics. Getting in basic classification of individuals, there are 3 types

  1.  Individuals (Below the age of 60 years)
  2.  Senior Citizen (Between 60 years to 80 years)
  3.  Super Senior Citizen (above 80 years)

Slab

Individuals

0 – 250000

0

250001 – 500000

5%

500001 – 1000000

20%

Above 1000000

30%

 

Slab

Senior Citizen

0 – 300000

0

300001 – 500000

5%

500001 – 1000000       

20%

Above 1000000

30%

 

Slab

Super Senior Citizen

0 – 500000

0

500001 – 1000000

20%

Above 1000000

30%

 

Slab rates have been same as FY 2018-19 and there are some changes in benefits of which are especially beneficial for salaried employees

Rebate u/s 87A has been increased

 If your Net Taxable Income is lower than Rs 5,00,000/-, then you could avail benefit of Rs 12,500/-. Which means if you get tax liability up to 12,500/-, you will not have to pay any tax. This will be more relief for small taxpayers where they don’t need to pay any taxes for income below 5,00,000.

Standard Deduction have been hiked by Rs 10,000

For FY 2018-19, standard deduction was allowed by Rs 40,000 but now for FY 2019-20 it has been hiked by Rs 50,000. I think this is the most beneficial decision for the sake of salaried employees who have no transport allowance and medical reimbursement.

 

What decision has been taken in Budget 2020 regarding tax regime


Well we could expect some benefits from the new tax regime and it is allowed to tax payers for choosing either they want to file their return with new tax regime or old tax regime as usual with above slab rates.

However this new tax regime is like you cannot get shelter without any cost, that means you have to scarify something to take benefits. In new tax regime, the tax rates have been reduced but at the same time you cannot claim standard deduction benefit and 80C deductions. From the point of a taxpayer who have made investments for claiming 80C deductions will not be benefited from this new tax regime. First of  all we will discuss an example by comparing new tax regime and old tax regime.

FY 2020-21

SLAB (in Lacs)

OLD TAX REGIME

NEW TAX REGIME

   0     -  2.5 

0

0

 2.5    -  5    

5%

5%

 5       -  7.5 

  

20%

10%

 7.5    -  10 

15%

 10     -  12.5 

  

30%

20%

 12.5  - 15   

25%

 Above 15 

30%

 

If we take an example of a salaried employee having salary of Rs 1000000 and can claim deductions of Rs 200000 (80C-150000 + Standard Deduction-50000), then his tax liability will be

Old tax regime - Rs 72500 (after considering deductions)

New tax regime – Rs 75000 (without deductions)

As you can see that there has been small difference in tax liability if we choose new tax regime. When the tax payer has very few deductions, then he should prefer new tax regime only. But there are many exemptions and deductions which you cannot claim in new tax regime. Here is the list few which are mostly available for taxpayers in past years and they cannot claim these in new tax regime

  •         House Rent Allowance (HRA)
  •         Conveyance
  •         Children education allowance
  •         Standard deduction
  •         Professional tax
  •         Interest on housing loan (Section 24)
  •         Chapter VI-A deduction (Except Section 80CCD(2) and 80JJA)

 This new tax regime will be beneficial if taxpayers don’t want to make any lock in investments for long periods and instead of investing for long periods, they can put their money in different options in current market.


But if the tax payer has housing loan, then he should definitely go for old tax regime, as the repayments of principle and interest will not be allowed in new tax regime. Interest for housing loan for self occupied property can be claimed up to maximum of Rs 200000.

Think before what you choose

While choosing tax regime, make analysis of both scenarios and then you have take decision. Every taxpayer can change the option every year except for those taxpayers who have Income from business or profession. Taxpayers having Income from business or profession have to properly analyze both the tax regimes with their chartered accountants and have to choose carefully, because if they have opted for one option then they cannot switch other option for their life time


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