Income Tax Slabs & Rates in India for 2020-21

 Every year, the income that you earn is subject to income tax. Calculation of your tax liability depends on the income tax slabs, which are determined under the Income Tax Act, 1961. These tax slabs specify the rates of tax payable on different levels of income. The higher the income you earn, the higher would be the income tax rate. However, before we understand the income tax slabs and calculation of your tax liability, let's look at the five sources of income that you need to declare when filing your income tax returns.

Sources of income

1. Income from salary
2. Income from business or profession
3. Income from capital gains
4. Income from house property
5. Income from other sources

Any income that you earn in a financial year should be recorded under the correct head of income. After that, the total income is added together to find your gross taxable income. You can claim eligible deductions and exemptions from your gross taxable income to arrive at the net taxable income, which would then be subject to tax.

Income tax slabs

Now that you know how you are required to calculate your taxable income, here are the income tax slab rates which are applicable to calculate your tax liability –

Income tax slab for individuals and HUF’s

Points to note

Here are some points which you should note concerning the above-mentioned income tax slabs

• In all the above-mentioned income tax slabs, there would be an additional health and education cess of 4% on the tax liability calculated.
• If your net taxable income is up to INR 5 lakhs, you can claim a rebate on the tax payable under Section 87A of the Income Tax Act, 1961. The rebate allowed would be your actual tax liability or INR 12,500, whichever is lower. This rebate reduces your tax liability to zero if your income is limited to INR 5 lakhs

Illustration

Let’s understand how to use the income tax slab for calculating your tax liability with the help of an example.

Mr. Verma is 40 years of age, and he has an income of INR 10 lakhs from salary and INR 2 lakhs from other sources. He invests INR 1.5 lakhs in ELSS schemes and INR 20,000 towards a health insurance policy. His income tax liability would be calculated as follows –

Calculation of Mr. Verma’s Taxable Income

New Income Tax Slab

In the Union Budget 2020, Mrs. Nirmala Sitharaman, India’s Finance Minister, introduced a new income tax slab. In this tax slab, the income tax rates are lower for higher levels of income. The new income tax slab is as follows –

Income tax slab 2020-21

Points to note

• This slab would be applicable from the financial year 2020-21
• Health and education cess of 4% would be applicable on the tax liability calculated using the above-mentioned income tax slab
• If you choose the new income tax slab rates, you would not be able to avail deductions and exemptions available under different sections of the Income Tax Act, 1961
• Two deductions can be claimed under the new tax regime from your taxable income. The first deduction will be for your employer's contribution to the National Pension Scheme (NPS) if you are a salaried employee under Section 80 CCD (2). Contribution of up to 10% of your salary would be allowed as a deduction. The second deduction is under Section 80JJAA where expenses incurred on new employment would be allowed as an exemption.
• The income tax slab 2020-21 is optional. You can either choose the new tax slab or the old one for calculating your tax liability.
• The rebate under Section 87A would be allowed even under the new tax regime if taxable income is up to INR 5 lakhs

Illustration

In the above example, if the new tax regime is considered and the employer’s contribution to NPS scheme is INR 50,000, the taxable income and tax liability would be calculated as follows –

Calculation of Mr. Verma’s Taxable Income (New Tax Slabs)

As you can see, even in the absence of deductions, the new tax regime allows a lower tax liability due to lower tax rates.

When you calculate your tax liability, use both income tax slabs, the old and the new, and find out your tax liability. Then choose the tax slab, which offers the lowest tax outgo and file your income tax returns. You can choose tax-deductible investments offered by IndiaNivesh and lower your tax liability using the old tax slabs. So, work out both the alternatives, if you need tax saving options, find them on IndiaNivesh and then file your returns.

 

Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

Ref: https://www.indianivesh.in/kb-blog/income-tax-slab