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What are income tax rates and slabs under the new tax regime ?
From
FY 2020-21, taxpayers can choose between two income tax regimes - the
existing /old tax regime and the new, concessional one. By opting for the
existing tax regime, the taxpayer can continue to avail existing deductions
such as section 80C, section 80D etc. of the Income-tax Act, 1961 and tax
exemptions like House Rent Allowance, LTC Cash Voucher Scheme etc. Although the
new, concessional tax regime offers lower tax rates as compared to the old tax
regime, by opting for the new regime.
Here are the latest
income tax rates and slabs under the new tax regime for FY 2020-21:
As
it can be seen from the table above, unlike in the old tax regime where the
highest tax rate of 30% is levied on individuals having income starting from Rs
10,00,001, the highest tax rate in the new tax regime is levied on individuals
having income starting from Rs 15,00,001.
Do keep in mind that commonly availed deductions
such as investments in Employees' Provident Fund (EPF), Public Provident Fund
(PPF) etc or tax exemption on rent paid or food coupons received etc will not
be
available under the new tax regime. Only
deduction under section 80CCD (2) of the Income-tax Act, i.e., deduction on the
employer's contribution to the Tier-I NPS account is available in the new tax
regime. The maximum deduction that can be claimed is 10% of basic salary plus
dearness allowance (DA) in a financial year by an individual (14% is applicable
for a central government employee).
Effective from FY 2020-21, aggregate contribution to PF, NPS and superannuation funds exceeding Rs 7.5 lakh in a financial year will be taxable in the hands of an employee. Further, any interest, dividend etc. earned on excess contribution will be taxable in the hands of an employee.
If you are confused about which tax regime will be beneficial for you, then you need to calculate the income tax liability inclusive of cess at 4% under both tax regimes. Once you have calculated the income tax liability in both tax regimes, you can choose the one where your tax liability is lower.
As per chartered accountants and tax experts,
anyone claiming more than Rs 2.5 lakh in deductions in a financial year will
not gain from switching to the new tax structure.
Things to keep in mind while choosing new income tax regime:
As per income tax laws, salaried individuals and
pensioners not having business income are eligible to choose between the new
and old tax regimes every financial year. This would mean that if you have
opted for the new tax regime in FY 2020-21 (on-going financial year), then you
can choose the old tax regime in the next financial year, i.e., FY 2021-22.
However, if an individual has
business income and opts for the new tax regime in FY 2020-21, then the
taxpayer will continue to pay tax as per the new tax regime for all future
financial years. Such individuals do not have the option to choose between the
two tax regimes in every financial year.
However, individuals with business income who
have opted for the new tax regime have once in a lifetime option to switch back
to the old tax regime. Once this option of switching back is exercised, then
the individual cannot opt for the new tax regime again.
Under both the tax regimes, if an
individual's income does not exceed Rs 5 lakh in financial year, then a rebate
of Rs 12,500 is available. Thus, irrespective of which tax regime is chosen, no
tax will be payable by an individual if his/her income does not exceed Rs 5
lakh in financial year. There is no increased basic exemption limit
available for senior citizens and super senior citizens under the new tax
regime. Individual irrespective of his/her age will have basic exemption limit
of Rs 2.5 lakh in a financial year, if new tax regime is opted. There is no increased
basic exemption limit available for senior citizens and super senior citizens
under the new tax regime. Individual irrespective of his/her age will have
basic exemption limit of Rs 2.5 lakh in a financial year, if new tax regime is
opted. As per the Central
Board of Direct Taxes (CBDT) circular dated April 13, 2020, for TDS on salary,
once the choice of tax regime is communicated to the employer, then the employee
cannot change the choice of tax regime during the financial year. However, at
the time of filing income tax return, an individual will have an option to
switch to any tax regime of his/her choice, irrespective of what has been
communicated to the employer.
Are
you really saving your taxes? Know your Tax slabs & review your investment
plans now!
It’s that time of the year again, when our
investments come again to the forefront. The investment receipts are all out,
our inbox is full of mails urging us to claim our tax-saving investments and
most of us are once again struggling to check if our investments are enough.
The tax-filing season in India begins in early January and our last minute
investments continue to be made for as long as March. While the tax-paying
population in India is on the lower side, the income tax collection during 2018-19
amounted to ₹ 442,170 crore. This leads us to the important question - Is our
investment plan doing the best for our current tax slabs?
This question is bound to torment you every
tax-filing season. But with the right information, you can easily make
investments that pay off. The first thing you need to ensure is that you have a
portfolio that is tailored to cater to your taxability and you need to have a
basic understanding of the various income tax slabs. If you are in the middle
of the tax-pool, in the 20% bucket, chances are it may be easy for you to save
taxes with some simple steps. However, it becomes very challenging if you
belong to the higher tax bracket of 30%! And if you too are wondering how your
investment plans currently fare, here’s what you need to know!
In addition to this, people with a taxable
income bracket of up to ₹ 5,00,000 also need to note that they are eligible for
full tax rebate. This change, which was announced in last year’s Union Budget
is a silver-lining for many who are looking to fully utilize their
tax-benefits.
Now that you know your tax slab, the next step
is to plan your investments depending on your lifestyle. Whether you are a
single person keen on experiencing the different things in life, or a happily
married couple planning for kids, there are some simple investment switches
that you can make to ensure that your life-goals are never out of reach. This
is especially true since the various aspects of saving taxes are far too
diverse. From your home loan EMIs to your children’s tuition fee, there are tax
exemptions for a variety of different things that you can benefit from.
For single folks busy exploring life:
If you are one from the clan of wanders &
explorers & are keen on travelling the world to find your own path, then
‘investments’ may very well be the ‘road not taken’. However, if you give it a
thought, now seems to be a good time for you to consider a few investments that
will come in handy for your future travels. If you already bear an education
loan, then turning towards a trust-worthy life insurance plan is a must.The
interest paid on your education loan in itself will bear you tax benefits under
section 80E of the Income Tax Act. In addition to this, opting for a ULIP (Unit
Linked Insurance Plan) can also help you fulfill all your aspirations. ULIP
options like the HDFC Life Click 2 Wealth plan are a brilliant way of investing
in market-linked instruments while curtailing the risk that normally
accompanies it. The Invest Plus option of HDFC Life Click 2 Wealth Plan
provides a life insurance while also taking care of your investment needs by
providing accumulated fund value at the time of maturity.
In addition to this
basic benefit, such investment plans in themselves help you save up to ₹ 1.5
lakhs. Under Section 80C of the Income Tax Act, the premium you pay towards
these schemes offer tax-deduction. In addition to this, you can also consider a
health insurance plan to claim deductions of up to ₹ 25,000 under Section 80D.
The fact that the premiums for life insurance and health insurance are lower if
you apply at a younger age is bound to be an added benefit.
Investments to consider - Life Insurance, ULIP, Health Insurance.
The Happily Married Couple:
If you are a happily married person, either
planning to have kids or already have kids, then you need to ensure that these
factors are accounted for in your investments as well! Your home loans,
personal health insurance and life insurance plans might help you save over ₹
20000, ₹ 88000 or ₹ 100000, in total, based on your tax slabs*. Howeve ..
One such plan, trusted by investment advisors
through and through is HDFC Life Click 2 Protect 3D Plus. The online term
insurance plan not only has our back in case of an uncertainty (death), but
also offers support to tackle certain disease and even disability. With a claim
settlement ratio of 99.03% for 2018-19, HDFC Life Click 2 Protect 3D Plus
offers benefits like whole life cover, life stage protection feature, premium waiver
benefit, tax benefits as per prevailing tax laws and more.
If you still feel like you are shelling out more
to taxes, turning to instruments like the National Pension Scheme, which offers
an additional deduction for investment up to Rs. 50,000 in NPS is available
exclusively under subsection 80CCD (1B); is a great means of adding to your
tax-savings while also planning your retirement!
Investments to Consider: National Pension Scheme, Family Floater Health
Insurance, Life Insurance with Premium Waiver Benefits.
Etching towards retirement:
If you are reaching closer to your retirement
age, chances are the bigger chunks of your life-goals are already achieved. The
home-loan is reaching its last leg of EMIs or already paid off, the alternate
income options like stocks, mutual funds or even a small-scale business are
already Set up, but the
tax-saving options may seem to be minimal. However, this is the perfect time to
increase your contribution to your provident fund, and also focus more on
contributing to the voluntary EPF fund.
Your
investment to the EPF scheme, home loan payments, and life insurance premiums
will help you enjoy the complete benefits of Section 80C. In addition to this,
you could relook on your investment portfolio and financial strategy and add in
a trusted Guaranteed Savings plan, which will further cushion your retirement
plans! One such plan is HDFC Life Sanchay Plus, which offers guaranteed returns
to you and your family.
HDFC Life Sanchay Plus not only gives us a
guaranteed return in either lump-sum or regular monthly incomes, but also
offers Life Long Income option (Guaranteed Income till age 99 years) provided
all due premiums have been paid and the policy is in force. This plan option
also offers return of your premium at the end of the payout period. Now is also
a great time to re-evaluate the Health Insurance Plans for you and your family
to avail all deductions of up to ₹ 50,000 under Section 80D.
The tax-benefits that you enjoy once you are
into retirement and in the senior-citizen club are unique and quite beneficial
to all. You can enjoy tax-free income of up to ₹ 5,00,000 (based on tax-slab
eligibility), your investment kitty opens up for new and better investments to
further save taxes and the repayments from your retirement plans during your
corporate tenure will help you truly enjoy life. With most responsibilities off
your shoulders, you can focus on shifting your investments towards products
like Senior Citizen Savings Scheme, National Savings Certificates, ELSS, etc.
In addition to this,
retired people can also ensure a regular income option by buying an annuity
plan like the HDFC Life Pension Guaranteed Plan, which provides guaranteed
regular income for lifetime. HDFC Life Pension Guaranteed Plan is a single
premium annuity product, designed to cater your needs. You can either take a
single or joint life plan and you have the option of receiving immediate or
deferred annuity.
There is no questioning the fact that there is a
financial plan that suits your ask and caters to what you need in every stage
of life. So whether you are new to the corporate world, still trying to figure
out your financial plan or happily retired, recheck your investment portfolio
and ask yourself – are you really saving your taxes?
Source:- The Economic Times Wealth :
