INDIVIDUAL TAXATION

The Finance Minister Mrs. Nirmala Sitharaman presented the Union Budget for FY 2020-21 which has a lot for the Individual taxpayers. Every individual taxpayer expects from the Union budget to reduce the tax burden on him and also to make the tax compliances simple.

Budget 2020 has made major changes in the Income tax slab for the Individuals. The tax rates are being cut significantly which will provide a boost to the middle-class individuals. In this article we will provide a glimpse of the major changes in the Income tax act and how these changes will impact an Individual compared to the present tax structure.

If certain conditions are satisfied an Individual or HUF shall from AY 2021-22 onwards have the option to pay tax on total income at following rates:

 

Total Income (Rs)	Rate
Upto Rs 2,50,000	Nil
From 2,50,001 to 5,00,000	5%
From 5,00,001 to 7,50,000	10%
From 7,50,001 to 10,00,000	15%
From 10,00,001 to 12,50,000	20%
From 12,50,001 to 15,00,000	25%
Above 15,00,000	30%

 

If the individual or HUF wishes to opt for the new tax regime he will not be liable to claim any deductions under chapter VI-A ,Deduction under section 35AD, Exemption for SEZ unit contained in section 10AA, Deduction from family pension, Exemption for SEZ unit contained in section 10AA, including major allowances such as Leave Travel Concession , House Rent allowance, Allowance for income of minor,Allowances to MPs/MLAs as contained in clause (17) of section 10.

However, deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme).

Almost all the allowances have been disallowed however few allowances such as Transport Allowance, Conveyance Allowance, Any Allowance granted to meet the cost of travel on tour or on transfer & Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty can be allowed as deduction.

 

Comparison for Tax to be Paid for Total Income of Rs 15,00,0000 under Old & New Tax Regime

                                                OLD REGIME                                            

Particulars	Amount Received (Rs)	Taxable Amount (Rs)
Basic Salary	13,00,0000	13,00,000
HRA	1,00,000	0 (Exempt)
Leave Travel Allowance	1,00,000	0 (Exempt)
Total Income	15,00,000	13,00,000
Deduction Under VI-A	1,50,000	1,50,000
Total Taxable Income		11,50,000

 

Tax to be paid as per the Old Tax Regime Slab (for Individual below 60 years)

Total Income (Rs)	Amount
Upto Rs 2,50,000	Nil
From 2,50,001 to 5,00,000	12,500
From 5,00,001 to 10,00,000	1,00,000
Above 10,00,000	45,000

So as per the data mentioned above, total tax that an Individual need to pay as per the old regime is Rs1,57,500 + Cess.

                                                              NEW REGIME

Particulars	Amount Received (Rs)	Taxable Amount (Rs)
Basic Salary	13,00,0000	13,00,000
HRA	1,00,000	1,00,000
Leave Travel Allowance	1,00,000	1,00,000
Total	15,00,000	15,00,000
Deduction Under VI-A	1,50,000	0
Total Taxable Income		15,00,000

Tax to be paid as per the New Tax Regime Slab (mentioned above)                        

Taxable Income	Tax (Rs)
Up to Rs 2,50,000	0
2,50,001 to 5,00,000	12,500
5,00,001to 7,50,000	25,000
7,50,001 to 10,00,000	37,500
10,00,001 to 12,50,000	50,000
12,50,001 to 15,00,000	62,500
Total	1,87,500 +Cess

So as per the data mentioned above total tax that an Individual need to pay as per the New regime is Rs 1,87,500+ Cess.

Going by the above examples what we see is although the tax rates in the new regime is less as compared to the old regime, an Individual ends up paying more taxes under the New Regime. Subject to availability of exempt allowances and deduction under chapter VI-A .

If any individual does not have any such allowances and deductions then he may end up paying more taxes in the old regime. One of the positive of new regime is an Individual being a lay man having not much knowledge about the taxes can simply put his total Salary income in the form and file the return himself without the help of any professional. The other impact of the analysis can be that Employers will find it difficult to generate pay slips and Form 16 as the employees will be confused with the old and regime which might create inappropriate deduction of TDS.

 

 

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