From Financial Year 2020-21, taxpayers will have the option of choosing between two income tax regimes. These options are the current/old tax regime and the latest, concessional tax regime. In this article, we will read about what are Income Tax Rates and Other important Information about Tax Regime.
Income Tax rates and slabs under the current tax regime.
|Income tax slab (Rs)||Income tax rates (%)|
|Up to 2,50,000||nil|
|From 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|
As we can see in the table above, unlike the previous tax regime, where the government imposed the highest tax rate of 30% on individuals with income beginning at Rs 10, 00,001, the newer tax regime’s highest tax rate is levy on individuals with pay starting at Rs 15, 00,001.
Note- It is important to note that Tax deductions such as section 80C, section 80D, and tax exemptions such as house rent allowance, LTC Cash Voucher Scheme,
Notification for New Tax Regime
It is important to note here that under the new tax regime, widely used deductions such as investments in Employees’ Provident Fund (EPF), Public Provident Fund (PPF), and tax exemption on rent or food coupons collected will not be available.
Tax Deduction available in the New Tax Regime
In the new tax regime, only the deduction under section 80CCD (2) of the Income-tax Act, i.e., the deduction on the employer’s contribution to the Tier-I NPS account, is accessible.
Moreover, in a financial year, a person can demand a maximum deduction of 10% of their basic salary plus a dearness allowance (DA). However, 14 per cent applies to a central government employee.
PF and Other Funds in the New Tax Regime
Employees who contribute more than Rs 7.5 lakh to PF, NPS, or superannuation funds in a financial year will pay tax.
Besides, any interest, dividends, or other income received on excess contributions is also taxable.
Important Points to remember
- According to income tax laws, salary earners and retirees who do not have any business profits are entitled to choose between the new and old tax regimes per fiscal year.
- You can decide on the new tax regime in the current fiscal year (FY 2020-21), you can select the old tax regime in the next fiscal year (FY 2021-22).
- If a taxpayer has any business profits and chooses the new tax system in FY 2020-21, the taxpayer will obey the new tax regime for all future financial years.
- However, Individuals in this condition cannot choose between the two tax regimes every fiscal year.
- Individuals with business opting for the new tax regime have a once-in-a-lifetime opportunity to revert to the old tax system.
- A refund of Rs 12,500 is available under both tax regimes.
- Thus, regardless of which tax regime chose, if an individual’s income does not exceed Rs 5 lakh in a financial year, no tax stays due.
- If the person adopts a new tax regime, they can have a basic exemption limit of Rs 2.5 lakh. In addition, it is regardless of age and per financial year.
- Regardless of communication to the employer, a person can choose any tax regime when filing an income tax return.
Download E-Startup Mobile App and Never miss the freshest updates narrating to your business.