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  • Category: Tax Planning

    New Personal Income tax Rebate Rules for the F.Y.2020-21


    Have a query about the rebate rules frpm the income tax department for an individual tax payer? Looking out for detailed information here? Scroll through this Ask Expert page for all responses from experts.

    In current Financial year 2020-21 there are two system of Income tax Rebate available for Individual Tax payer.
    1. No rebate for the tax payers who opted in New regime tax system. and
    2. All previous rebate system can be availed under Old regime Individual.
    What is exact meaning of this and what rebate is available and not available under the present tax rules. Please explain to understand the topic.
  • Answers

    5 Answers found.
  • The Govt had announced these new tax rules during the Budget 2020 and these will be applicable for the income earned during the FY 2020-21 and will be assessed by IT department in the Assessment Year (AY) 2021-22. One interesting aspect of these announcements was that there is also an option of filing IT return with the earlier rates and rebates. So one can calculate the tax in both of the options and file the return which suits to one. Depending upon the individual income group there will be difference between the two options. Let us now see what are the main changes in rebates or other things between the old system and the announced new system under which one can file the IT return for FY 2020-21 from 1st April 2021 onwards.

    Tax rates and rebates as per old regime (for salaried class):
    Tax rates -
    Rs 0 - 2,50,000 : Nil
    Rs 2,50,001 - 5,00,000 : 5%
    Rs 5,00,001 - 7,50,000 : Rs 12500 + 20% of total income exceeding Rs 5,00,000
    Rs 7,50,001 - 10,00,000 : Rs 62500 + 20% of total income exceeding Rs 7,50,000
    Rs 10,00,001 - 12,50,000 : Rs 112500 + 30% of total income exceeding Rs 10,00,000
    Rs 12,50,001 - 15,00,000 : Rs 187500 + 30% of total income exceeding Rs 12,50,000
    Above Rs 15,00,000 : Rs 262500 + 30% of total income exceeding Rs 15,00,000
    Rebates -
    Maximum deductions under section 80C : Rs 1,50,000
    Standard deduction (Medical & Travel Allowance) : Rs 50,000
    Maximum deductions under section 80CCD : Rs 50,000
    Maximum HRA deduction as per section 10(13A) : Rs 1,50,000

    Tax rates and rebates as per new regime (for salaried class):
    Tax rates -
    Rs 0 - 2,50,000 : Nil
    Rs 2,50,001 - 5,00,000 : 5%
    Rs 5,00,001 - 7,50,000 : Rs 12500 + 10% of total income exceeding Rs 5,00,000
    Rs 7,50,001 - 10,00,000 : Rs 37500 + 15% of total income exceeding Rs 7,50,000
    Rs 10,00,001 - 12,50,000 : Rs 75000 + 20% of total income exceeding Rs 10,00,000
    Rs 12,50,001 - 15,00,000 : Rs 125000 + 25% of total income exceeding Rs 12,50,000
    Above Rs 15,00,000 : Rs 187500 + 30% of total income exceeding Rs 15,00,000
    Rebates -
    Maximum deductions under section 80C : Rs 0
    Standard deduction (Medical & Travel Allowance) : Rs 0
    Maximum deductions under section 80CCD : Rs 0
    Maximum HRA deduction as per section 10(13A) : Rs 0

    (Note:
    1. For senior citizens (60 to 80 years age) the basic income threshold exempt from tax is Rs 3 lakhs and for super senior citizens (above 80 years) it is Rs 5 lakh.
    2. Surcharge and chess will be extra on the above tax.)

    Please note that I have shown only some of the main deductions allowed in old regime but there are many others of less importance which are now removed in the new one and one can simply understand that in the new regime there is no deduction allowed. So, one can calculate the tax in both the regimes and see which one is beneficial to him.

    Those who are having significant investments or expenses under deductions allowed in old regime can go for old regime otherwise new regime will be beneficial.

    Knowledge is power.

  • During the 2020 budget the finance minister of announced its new income tax policy. But We will have the option to go as per the old income tax policy.
    In this scheme, the speciality is there are no deductions under section 80C, Medical & Travel Allowance. section 80CCD and HRA deduction as per section 10(13A). Whereas in the old system under section 80C, an exemption up to Rs.1,50.000/- income is allowed. You can also utilise a deduction up to Rs.50,000/- towards medical and travel allowance. 80CCD deduction is up to Rs.50,000 . You can also avail a deduction of Rs.1,50,000/- HRA deduction as per section 10(13A).
    But in new policy the income tax rates are different.
    In both policies up to an income of Rs2,50,000/- there is no tax.
    From Rs,2,50,000/- to Rs,5,00.000/- in the old policy the rate of tax is 5% whereas in the new policy it is NIL.
    From Rs,5,00,001/- to Rs. 7,50.000/- in the old policy the tax is Rs 12500 + 10% of total income exceeding Rs 5,00,000whereas in the new policy it is Rs 12500 + 10% of total income exceeding Rs 5,00,000
    From Rs,7,50.001/- to Rs.10,00.000/- in the old policy the tax is Rs 62500 + 20% of total income exceeding Rs 7,50,000 whereas in the new policy it is Rs 37500 + 15% of total income exceeding Rs 7,50,000
    From Rs,10,00,001/- to Rs. 12,50,000/- in the old policy the tax is Rs 112500 + 30% of total income exceeding Rs 10,00,000 whereas in the new policy it is Rs 75000 + 20% of total income exceeding Rs 10,00,000
    From Rs,12,50,001/- to Rs.15,00.000/- in the old policy the tax is Rs 187500 + 30% of total income exceeding Rs 12,50,000 whereas in the new policy it is Rs 125000 + 25% of total income exceeding Rs 12,50,000
    For above Rs,15,00.001 in the old policy the rate of tax is Rs 262500 + 30% of total income exceeding Rs 15,00,000 whereas in the new policy it is Rs 187500 + 30% of total income exceeding Rs 15,00,000.
    The individual can calculate the tax on both the methods and whichever is beneficial to him that can be adopted.
    In the new policy, there are no deductions but tax rates are less whereas in the old policy there are deductions but tax rates are high.

    drrao
    always confident

  • The two system of Income Tax Rebate available for Individual Tax payer from 1 April 2021 are already well explained in the above posts. Now we can understand it by taking an example. Suppose a person whose salary is around 10 lakh and he has savings like life insurances(Rs.50,000), Children tuition fee (Rs.60,000), PPF (Rs.20,000)home loan interest and principal certificate (Rs.2,10,000 including Rs.40,000 principal and Rs.1,70,000 interest component), health policy (Rs.26,000) etc.
    Now if he chooses to file his Income Tax Retune in old scheme then we can calculate his income tax like as here as under:
    Tax rates and rebates as per old regime (for salaried class):

    Net income: Rs.10,00,000
    Standard Deduction: Rs 50,000
    Home Loan U/s 24 (b): 1,70,000
    (Or HRA if anyone is payment House rent as per section 10(13A))
    Gross Income: Rs.7,80,000
    Rebates -
    Maximum deductions under section 80C (Life Insurances, Tuition fee, Home loan Principal Component, PPF etc.): Rs 1,50,000
    Health Policy u/s 80D : Rs 25,000
    Maximum deductions under section 80CCD : Rs 50,000

    Total Taxable income: Rs.5,55,000

    Tax rates -
    Rs 0 - 2,50,000 : Nil:
    Rs 2,50,001 - 5,00,000 : 5%= Rs.12,500
    Rs 5,00,001 10,00,000 : 20% = Rs.10,000
    Income Tax: Rs.22,500
    Cess @ 4%: Rs.900
    Total Tax Outgo: Rs.23,400

    Tax rates and rebates as per new regime (for salaried class):
    Tax rates –
    Net income: Rs.10,00,000
    Standard Deduction: 0
    Home Loan U/s 24 (b): 0
    (Or HRA if anyone is payment House rent as per section 10(13A))
    Gross Income: Rs.10,00,000
    Rebates -
    Maximum deductions under section 80C (Life Insurances, Tuition fee, Home loan Principal Component, PPF etc.): 0
    Health Policy u/s 80D : 0
    Maximum deductions under section 80CCD : 50000

    Total Taxable income: Rs.9,50,000

    Tax rates -
    Rs 0 - 2,50,000 : Nil
    Rs 2,50,001 - 5,00,000 : 5%= Rs.12,500
    Rs 5,00,001 - 7,50,000 : 10%=Rs.25,000
    Rs 7,50,001 - 10,00,000 :15%=Rs.30,000
    Income Tax: Rs.67,500
    Cess @ 4%: Rs.2,700
    Total Tax Outgo: Rs.70,200

    So, we can see here that if the salary is below 10 Lakh and a person having sufficient saving proof it will be better to go with the old scheme but if anybody does not have sufficient saving proofs then he must go with new scheme. Further, for higher salaried person new scheme is better.

  • Members have already provided you with answers relating to the new slab and old slab difference and also the rates, so instead, I would like to provide you with little more details that would clear your doubts regarding the tax slabs.

    The term "Tax Rebate" is very lightly used by most which is not correct terminology. Even the new slab says that there will be no deduction available and there is no mention of tax rebate. Tax rebate is allowed to be claimed out of the total tax amount and deductions can be claimed out of total income. So, there is a big difference between deductions and tax rebates. Section 80C, 80D, 80U, and all other sections under Chapter VI A of the Income-tax Act fall under the term deductions and Section 87A is an example of Tax rebate.

    Now coming to the new slab and old slab. The old slab only had 3 tax rates i.e. 5%, 20%, and 30% but the new slab has 6 rates of taxation. These rates have been already explained above so I won't be going into that part.

    To get the best possible option with the least tax and maximum saving one will have to calculate his tax liability under old and new tax regimes. The same will be based on the income of an individual. In a gist, it can be said those who opt for a new tax regime will have to forego 70 out of 100 tax exemptions.

    Few major exemptions are as below:
    1. LTA - Leave travel allowance
    2. HRA - House Rent Allowance
    3. Standard deductions and deduction for entertainment allowance and professional tax.
    4. Housing loan interest deduction for personal use.
    5. Deduction under Chapter VIA
    6. Deduction under section 35AD to 35CCC.

    Those who have taken a housing loan and opted for the new tax regime will be at a greater loss. Suppose Mr. A has a salary of 8.5 lakhs p.a. and has also availed a housing loan on which he pays around Rs. 20,000 as EMI. Mr. A also invests in National Pension Scheme (NPS) which is around Rs. 4000 p.m.

    If Mr. A opts for the new tax regime then he will lose the benefit of NPS as well as housing loan interest repayment under section 24 and his income will become taxable which under the old regime will be tax-free.

    This is because NPS deduction of Rs. 50,000 is over and above the limit of Rs. 1,50,000 i.e. one can get a deduction of Rs. 2,00,000. Also, housing loan interest deduction of Rs. 2,00,000 is also available, so a deduction of Rs. 4,00,000 plus standard deduction of Rs.50,000 makes a total deduction of Rs. 4,50,000 available under the old regime.

    So, one has to opt between the 2 regimes prudently and avoid knee jerk decision while selecting the best suitable tax regime for him/her based on the salary one is drawing.

    More than offering tax benefits, this slab has been introduced to enable an individual to have more money in hand and henceforth use the same for expenditures/spending. This will lead to more circulation of money in the economy and alternatively boost the nation as a whole. The young generation loves to spend more than save and this intent has been somewhat encapsulated with the new tax slabs. If one saves money under various schemes available then the individual is left with a very less amount of money to actually spend on himself and his/her family. Also, the Government is obligated to offer tax benefits as well as return the money along with interest to the individual after a fixed period of time.

    This has not been specifically mentioned anywhere in the budget but the intent is very clear when it is studied carefully. More than saving, spending will boost the economy and this is what the new tax regime aims to capture.

    Live before you leave.

  • Hope you got a clarification from the above posts about the tax rates and deductions. There are two systems - New regime and Old regime.

    Let's talk about Old regime. If you opt in for old regime, and if your income is less than Rs. 5 lakhs, you'll be eligible for a rebate of the actual tax value Rs. 12,500 (i.e., Rs. 2,50,001 to Rs. 5,00,000 @ 20% for normal citizens) making your tax liability nil. And, in addition to that, you could claim deductions under various sections like 80C, 80CC, 80CCD, 80D, 80DD and 80U.

    Now let's take the New regime. If you don't want to pay tax under old regime, and want to go for new regime, here are the drawbacks - You are not eligible for the rebate amount, even if your income is below Rs. 5 lakhs but more than the basic exemption limit. Apart from the basic exemption limit, you need to pay the tax amount plus surcharge and cess. And, to add-on you couldn't be able to claim the deductions. Hence, this tax system would be disadvantageous for the assessee, at times.

    An assessee has the option to select the tax system, either new or old, at the time of filing his tax return. There are certain exceptions to this. Generally, it is the duty of the assessee to calculate his income and tax liability under both systems and take a decision accordingly, in order to find which is beneficial to him. It is better to do tax planning.


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