One Tax Slab to be Selected
Since there was no change in Income Tax Slab in Budget 2021, taxpayers under Budget 2020 can choose one of these two options while filing their Income Tax Return. can. Out of these two options, one option is the old/existing tax slab and the other option is the new tax slab, which was introduced in Budget 2020.
What is the earlier tax slab
First let us understand what is the earlier tax slab, whose option is still available today. According to the tax slab introduced in the budget before 2020, there is no tax on income up to Rs 2.5 lakh. Income from Rs 2.5 lakh to Rs 3 lakh is taxed at the rate of 5 per cent. Also, tax exemption of Rs 12,500 is available under u/s 87A. Income ranging from Rs 3 lakh to Rs 5 lakh is also taxed at the rate of 5 per cent and tax exemption of Rs 12,500 is available under u/s 87A. Thus, in this tax slab, no tax liability is created by getting tax exemption under 87A up to income up to Rs 5 lakh. Beyond this, income of Rs 5 to 7.5 lakh is taxed at the rate of 10 percent. Income of Rs 7.5 to 10 lakh is taxed at the rate of 15 percent. Income between Rs 10 to 12.50 lakh is taxed at the rate of 20 per cent. Income between Rs 12.5 lakh and Rs 15 lakh is taxed at the rate of 25 per cent. After this, income above Rs 15 lakh is taxed at the rate of 30 percent.
What is the new tax slab
In the budget of 2020, the rates in the tax slab were reduced, but in this the other tax exemptions under section 80C and other tax exemptions have been abolished. The new tax slab was divided according to age. In this, a tax slab has been made up to the age of 60 years, a slab for the age of 60 to 80 years and a slab for super senior citizens above the age of 80 years. No tax on income up to 2.5 lakhs for 60 years. 2.5 lakh to 5 lakh is taxed at 5 per cent, 5 to 10 lakh 20 per cent and above 10 lakh 30 per cent. There is tax exemption under 87A on income of Rs 2.5 to 5 lakh in this tax slab. Tax free up to 3 lakh between 60 years to 80 years. After that there is 5 percent tax up to 5 lakh and 20 percent tax on 10 lakh. In this, tax exemption is also available under 87A. There is no tax on income up to Rs 5 lakh if you are above 80 years of age. 20 per cent on income of 5-10 lakhs and 30 per cent on above.
Difference between new and old tax slabs
Apart from the rates in the new tax slabs introduced in the previous budget, the major difference is that various exemptions have been abolished, whereas The benefits of various types of tax exemptions are available in the old / existing tax slabs. That is, under the old tax, there is a tax of 5 percent on income above 2.5 lakhs, but with many exemptions it becomes almost nil. There is no tax in the new tax slab till income up to 5 lakhs, but in this many old exemptions have been abolished.
Tax Exemption in Both
In both old/existing income tax slabs one can get tax exemption up to maximum of Rs 1.5 lakh by investing in specified instruments under section 80C. Due to this tax exemption, no tax liability will be created on income up to five lakhs in the old / existing income tax slab.
Conditions on opting for tax slab
A taxpayer opting for concessional rates in the new tax regime will have to forego certain exemptions and deductions available in the existing/old tax regime. There are 70 deductions and exemptions that are not allowed in the new tax slab.
In the new tax system, the highest tax is levied on income of 15 lakhs annually and above. This arrangement is beneficial for those who claim less exemption and deduction. Those who fall in higher tax slabs and who have made necessary investments to save tax, they will not benefit much from this arrangement. Those who want to adopt the new system of rates will have to forgo all the exemptions like standard deduction, 80C, 80D, housing loan, NPS. If someone adopts the new system then he/she will have to choose the option. If you do not do this, then your tax slab will continue to be calculated from the old system.
The new system is fine for those under 30
Those who are under 30, the new system will be fine, but if the older people stay in the old system then would be better. The new system can be better for people earning less than 10 lakhs. For those earning more than this, it would be better to remain in the old system. If the home loan is running, then it would be appropriate to repayment of the home loan. In this case, the benefit of deduction will be available. Such people should remain on the old system. Those who pay school fees of children, it would be better to stick to the old system as one can avail tax exemption on fees.