February 1, 2020

Latest Income Tax Slab Rates FY 2020-21 (AY 2021-22)

What are the Latest Income Tax Slab Rates FY 2020-21 (AY 2021-22) after Budget 2020? Is there any changes to applicable tax rates for individuals? Let us see the details.

I already covered the Budget 2020 related posts and you may refer them for your better understanding.

In this post, my concentration is to share with you about the Latest Income Tax Slab Rates FY 2020-21 (AY 2021-22) and applicable Security Transaction Tax (STT).

The difference between Gross Income and Total Income or Taxable Income?

Before jumping into Latest Income Tax Slab Rates FY 2020-21 (AY 2021-22), first understand the difference between Gross Income and Total Income.

Many of us have the confusion of understanding what is Gross Income and what is Total Income or Taxable Income. Also, we calculate the income tax on Gross Income. This is completely wrong. The income tax will be chargeable on Total Income. Hence, it is very much important to understand the difference.

Gross Total Income means total income under the heads of Salaries, Income from house property, Profits and gains of business or profession, Capital Gains or income from other sources before making any deductions under Sections.80C to 80U.

Total Income or Taxable Income means Gross Total Income reduced by the amount of permissible as deductions under Sec.80C to 80U.

Therefore your Total Income or Taxable Income will always be less than the Gross Total Income.

Latest Income Tax Slab Rates FY 2020-21 (AY 2021-22)

The government now confused individual taxpayers. Earlier individuals used to worry only about finding ways to tax and invest accordingly. Now they have to find the ways which tax slabs they have to use.

In one way Government is forcing us to SAVE more. However, with this new change, I think the Government is more concerned with making us to SPEND more.

There will be two types of tax slabs.

  1. For those who wish to claim IT Deductions and Exemptions.
  2. For those who DO NOT wish to claim IT Deductions and Exemptions.

Let me explain both the slabs as below.

Latest Income Tax Slab Rates for FY 2020-21 AY 2021-22

Now, if you wish to choose the new tax regime, then you have to forget the below deductions or exemptions.

(i) Leave travel concession as contained in clause (5) of section 10;
(ii) House rent allowance as contained in clause (13A) of section 10;
(iii) Some of the allowance as contained in clause (14) of section 10;
(iv) Allowances to MPs/MLAs as contained in clause (17) of section 10;
(v) Allowance for income of minor as contained in clause (32) of section 10;
(vi) Exemption for SEZ unit contained in section 10AA;
(vii) Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in
section 16;
(viii) Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23.
(Loss under the head income from house property for rented house shall not be allowed to be set off under any
other head and would be allowed to be carried forward as per extant law);
(ix) Additional deprecation under clause (iia) of sub-section (1) of section 32;
(x) Deductions under section 32AD, 33AB, 33ABA;
(xi) Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause
(iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;
(xii) Deduction under section 35AD or section 35CCC;
(xiii) Deduction from family pension under clause (iia) of section 57;
(xiv) Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA,
80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However, deduction under
sub-section (2) of section 80CCD (employer contribution on account of the employee in notified pension scheme) and
section 80JJAA (for new employment) can be claimed.

However, there are certain deductions you can still claim using the new tax regime and they are as below.

  1. Retirement benefits, gratuity etc.
  2. commutation of pension
  3. leave encashment on retirement
  4. retrenchment compensation
  5. VRS benefits
  6. EPFO: Employer contribution
  7. NPS withdrawal benefits
  8. Education scholarships
  9. Payments of awards instituted in public interest

Which one to use for the highest tax benefits?

It is not yet clear and hence it is hard for me to say anything BLINDLY. However, going by changes, I assume it changes from individual to individuals. Hence, you have to calculate on your own and adopt the one which is more beneficial for you.

CONFUSING RIGHT? YES, as per me, this new tax slab regime is the most complicated tax slab rate any government introduced. Now many individuals will be in a dilemma of which one to use, the ADDITIONAL one along with the existing headache for taxpayers of HOW TO SAVE MORE TAX.

Note: – Along with the applicable taxes, you have to additional surcharges at below rates.

  • Surcharge:
    • 10% surcharge on income tax if the total income exceeds Rs.50 Lakhs but below Rs.1 Cr.
    • 15% surcharge on income tax if the total income exceeds Rs.1 Cr.
  • Health and Education cess : 4% cess on income tax including surcharge. This Health and Education Cess replaced the earlier 2% Education Cess and 1% Secondary and Higher Education Cess from Budget 2018.

Whether the interest earned from PPF, EPF, or SSY (Sukanya Samridhi Yojana) is taxable?

There is one more confusion among many of us that if one adopted the new tax regime, then whether the PPF, EPF or SSY will remain tax free? The answer is YES.

Once you adopt the new tax slab by not using any deductions or exemptions, you are just forgoing the tax saving part of these schemes. However, the interest earned and maturity amount will remain tax free for you as it was earlier.

Earlier these products used to classified as EEE (Exempt-Exempt-Exempt) but now they turned into TEE (Taxable-Exempt-Exempt).

I will update the STT rates once I get a clear picture on this aspect.

37 Comments

  1. The content of their article. Thanks for sharing. Hope to read more useful information from you.

    Reply
  2. Sir,

    When we will get your mutual fund suggestion for 2020.it is very helpful for us.

    Reply
  3. sir,
    If i choose the new regime of tax, would i be able to switch back to the old tax slabs in future?
    Also i have made investments in sukanya samridhi and PPF through postoffice, can i avail the tax exemption in the next assessment year if i stick on with the old tax slabs?

    Reply
    • Dear Arathi,
      If you don’t have business income, then you can switch over as per your wish. Yes, if you adopted old tax slab, then you can take the exemptions of PPF and SSY.

      Reply
      • Hi Basu,

        What about capital gains from Stock, real estate and Mutual Fund?? It is counted as Business income or not ??

        Reply
  4. Thanks for the explanation…

    True… There is no savings according to the new tax slab. As a common man it looks like we can’t save. If we want to save need to be need to choose previous year IT slab…

    Prices are increasing day by day but we can’s save anything here.

    Reply
  5. IF ONE GO WITH OLD REGIME NEXT FY THEN STANDARD DEDUCTION OF RS. 50000 APPLICABLE OR NOT?

    Reply
  6. Basu, If we keep PPF as Debt component for the long term goal for AA purpose to build corpus. Suppose if i choose switch to New tax regime , so i will be loosing tax savings option of PPF. In that case is it wise to choose only Debt funds instead of PPF for future goal planing investments

    Reply
    • Dear kalai,
      Tax Benefits at the time of investment may be lost but rest of the futures will remain so, which is far better than debt funds.

      Reply
      • Thanks Basu.
        The rates are going down for PPF and lock-in is also another big trouble for rebalancing from Debt to Equity as part of AA reset procedure every year. So i am thinking Debt funds is ok for this case.

        Reply
        • Dear Kalai,
          Keep around 25% of your debt part in the Arbitrage Fund. This solves the issue.

          Reply
  7. Dear Basu,

    Thank you for sharing knowledge and updates on latest events. How about NRI Income Tax slab. Will the new tax slab will be applicable for NRI?

    Reply
  8. Hi Basavaraj,

    Is there any facility by Income Tax department or Govt of Karnataka for filling IT returns without any charges or minimum charges at Bangalore? I had asked one of CA near by and he was asking Rs 1000 for File Return

    Thanks
    Padmavati

    Reply
    • Dear Padmavati,
      You can use Tax Return Preparer scheme. Use this LINK to search a person in your area.

      Reply
      • Thank YOu Basavaraj

        Reply
  9. Thanks a lot Basavaraj. Crystal clear explanation of the Tax slabs and implications. I think before opting for new system or remaining in old system, it is better to calculate both and decide whichever is beneficial. So atleast for that , a professional is required. I feel for those who are saving 80C, 80D,80G, old system is better suited.
    It may vary for individual cases. I request ypou to give a sample calculation using both systems to arrive at the right one.

    Reply
    • Dear Gopal,
      Yes, if someone is easily completing the deductions and exemptions, then the old rate is obviously the best choice. Otherwise, new one will be best. I stayed away from giving example as it varies from case to case.

      Reply
  10. Hi Basu,

    Thank you for an elaborate update. Extremely helpful. Would be watching this space for more updates.

    Reply
  11. Respected Sir
    Your article is a great help to clear the doubts. I will pass on the detail in my inter action with a number of senior citizens for awareness creation

    Reply
  12. Hi Basu,

    I see new tax slab , NO Tax up for 0- 5 Lakh for 2020-2021. Do I need to file return if I income falls below 5 Lakh. Please let me know. Is there any chance of getting notification from Income Tax department if I don’t file returns incase income falls below to 5 Lakh

    Thanks
    Dinkar

    Reply
  13. How it is going to impact on Mutual fund investment?

    Reply
    • Dear Rajiv,
      Except for Dividend tax, the rest everything will continue as usual.

      Reply
  14. Sir, Deduction under Section 80 U still available under the new tax regime?

    Reply
    • Dear Balagopala,
      Sec.80U is part of Chapter VIA. Hence, under new tax regime, you have to forget it.

      Reply
  15. Dear Sir, Thanks for your prudent feedback along with guidelines. But it is not clear any where what will be the faith of LIC premiums paid up to this year, will LIC declare bonus and other benefits to his customers who purchased policies on good faith and trust on the basis of agreement document in which it is clearly maintained that the policy holder will get the benefit of section 80C of IT act and no tax will be attracted on mature amount. As per my personal experience any one who purchased policy not for death benefit rather for saving and excemption in tax.

    Reply
    • Dear Prem,
      This Budget will come into effect from 1st April 2020. Hence, you no need to worry for current FY. You can still get the tax benefits if you are using the old regime tax slab.

      Reply
  16. Great article . Keep posting useful information sir .

    Thanking you for clear explanation

    Reply
      • Hello basu
        If I opt for old tax scheme next fin year
        Do LIC ,SSY savings option exist under 80 c

        Reply

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