Key personal taxation updates from Union Budget 2020

Finance Minister has given food for thoughts to the salaried Individuals who plan their tax and investments. A puzzling year with options given on choosing a tax rate. Union budget has been an attempt and a step towards simplifying the tons of rules and sub rules in tax.

The new tax regime as per the Union budget 2020 has given options to the Individual tax payers to choose lower tax rates. However, there are certain conditions to avail these lower tax rates which include foregoing some exemptions and deductions. Hence, it is required to evaluate for each individual separately, based on their current investments and salary structure , to decide the beneficial option that gives them lower tax cost.

The tax rates under both the regimes where one of the 2 has to be chosen by the Individual are as below

Total Income in lakhsOld regimeNew Regime
0 to 2500000%0%
250000 to 5000005%5%
500001 to 75000020%10%
750001 to 100000020%15%
1000001 to 125000030%20%
1250001 to 150000030%25%
Above 150000030%30%

The rebate upto INR 12,500 if the total income doesn’t exceeds INR 500000 exists in the both the options. Hence for income upto INR 500000 the tax cost shall continue to be 0 effectively.

The lower tax rates under the New regime can be chosen only if the below benefits are not claimed.

  • (LTA) Leave Travel Allowance exemption
  • HRA exemption
  • Deduction on Minor income clubbed with Parents income (upto INR 1500)
  • Standard Deduction (INR 50000)
  • Exemption on meal coupons
  • Tax on Employment / Professional tax
  • Individual’s Contribution to NPS (employers contribution will still be available)
  • Chapter VIA Deduction which include investment in PPF, EPF, Mutual Funds, Life and medical Insurance, housing loan principal repayment, medical expense of dependents and self, donations to trusts , mutual etc,.
  • Interest on housing loan of self occupied houses ( loss from rented houses can be carried forward but cannot be used in same year)

Considering the above it is worth to evaluate one’s existing investments, salary structure and re-do efficient financial and tax planning. There is a need to evaluate if the benefit from the above deductions is more than the benefit from the lower tax rate as per the new Tax regime.

The option of lower tax rates as per the new regime shall be chosen by individuals for each year separately. However in case of individuals having income from business if they chose to apply the lower tax rate as per the new regime once , the same will apply for subsequent years also.

This option shall be applicable for Individuals only and does not apply to partnership firms or companies. The tax rates for firms, companies and LLPs are same as earlier.

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