Union Budget 2020 introduced a new, unexpected, and yet not much change in the tax rate regime. It empowers you with options. You can choose whether to continue with the old 2019 tax regime or follow the new 2020 tax structure. Let’s explore!
Choose your Tax regime and Plan your taxes for the Financial Year 2020-21
Union Budget 2020 introduced an optional New personal Tax Regime (NPTR), with lower tax rates and minimal deductions. However, every taxpayer needs to compare and understand the 2019 and 2020 tax structures to calculate their profit.
Our Honourable Finance Minister Nirmala Sitharaman introduced the Finance Bill 2020 in Parliament on 1st Feb’20. This budget proposes various changes in personal income taxes and came under effect from 1st April 2020, i.e., FY 2020-21.
Budget 2020 inclusions:
The Government of India announced Union Budget 2020 with new tax slabs and low tax rates. And, lower tax rates are the brightest stars of this budget.
It reduced the tax rates for different taxable income slabs in the new regime. The income tax rate, for example, the individuals from 5-7.5 Lakhs taxable income slab have to pay, has almost halved as compared to the old regime. How it has passed on to the people belonging to different income groups can be easily understood from the table below. It shows the comparison of tax rates between the last and current financial years.
But, does this mean that you have to pay less tax. No, the government gave lower tax rates but deducted few perks from the previous tax regime.
Budget 2020 exclusions:
The rebates came at a price. One can think just by looking at the above table that he or she has received tax benefits. But, before reaching this conclusion, one must understand that with reduced tax rates across slabs, the government has also removed the deductions and exemptions that an individual used to enjoy with the old regime. So, if you want to enjoy lower tax rates for your taxable income, you have to give up your exemptions and deductions.
Taxable income is your total income minus the exemptions allowed by the government and availed by you.
What are these exemptions and deductions?
The government allows taxpayers to avail reduction or exemption in the income tax under section 80C, HRA, Standard Deduction, etc. In the older tax regimes, the Government offered deductions to taxpayers, if they invested in schemes like LICs, Equity Linked Savings Scheme (ELSS), Postal Saving Schemes, Medical insurances, mutual funds, etc. If an investor, for example, invests around Rs. 40,000 in an ELSS, then the same amount is deducted from the total taxable income of the investor. Less taxable income will attract lower tax rates.
The Government excluded almost 70 deductions from the new tax regime. It will result in higher taxable income, which might attract different tax rates. Yet, approximately 50 exemptions are still there in the new budget. These include standard deduction on rent, agricultural income, income from life insurance, etc.
Which regime is better for you?
Well, before concluding which regime is better, you have to consider your income and preferences. The best part about the union budget of 2020 has made the tax regime optional. Depending on your preferences and profit, you can either continue with the old tax regime or choose the new one.
According to Finance minister Nirmala Sitharaman herself, as stated during her budget 2020 speech, a taxpayer with an earning of Rs. 15 Lakhs per annum will have to pay a tax of Rs. 1.95 Lakh approximately following the new tax regime, as compared to Rs. 2.73 Lakh he/she has to pay following the old regime.
An individual may choose a new personal tax regime (NPTR) for deduction of tax from salary income. But, once selected and intimated to the employer, you cannot change it during the year. You can modify it only at the time of filing the income tax return. So, one should take the decision only after considering all the points.
The best way to choose is by looking in detail over the different aspects of his/her income. What are the sources of income, how much one wants to have as savings, etc., are the points to consider. There are many websites, including the Income Tax Department Government of India, that provide free tax calculators. You can use it to compare and understand what best suits you.
People with taxable income up to INR 5 Lakhs or new joiners can reap benefits from the new regime. Now, you need not hire professionals to do your taxes and get better returns. Also, the new regime will help to control the advertisement of insurances and policies for tax savings. But people who have already invested much in tax saving options, or people with higher taxable income will have to think twice before choosing the tax regime.
The general trend seems to suggest that an individual with lower income will opt for the new option, and the people falling into high-income slabs may continue with the old.
The sentence formation could be revised
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