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How Is Your Income Tax Calculated 2020?

IndianMoney.com Research Team | Posted On Monday, February 03,2020, 12:35 PM

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How Is Your Income Tax Calculated 2020?

 

 

The Finance Minister Nirmala Sitharaman presented the Union Budget on 1st February 2020. The Union Budget 2020 proposed a new personal tax regime. In all this, the old tax regime does continue, and you have the option to stay with the old tax regime. If you shift to the new tax regime, you will forego a number of tax deductions and exemptions.

Some of the popular tax deductions and exemptions you will forego are Section 80C, HRA, Home Loan Interest, Standard Deduction, LTA, Health Insurance Premium under Section 80D, Education loan interest under Section 80E and even the tax benefits on savings bank interest.

Now, you have the choice to continue with the old tax regime or shift to the new tax regime. Let’s understand the new tax regime.

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How Is Your Income Tax Calculated?

Income Tax Slabs

Old Tax Rates

New Tax Rates

Up to Rs 2.5 Lakhs

0

0

Rs 2.5 Lakhs to Rs 5 Lakhs

5*

5

Rs 5 Lakhs to Rs 7.5 Lakhs

20

10

Rs 7.5 Lakhs to Rs 10 Lakhs

20

15

Rs 10 Lakhs to Rs 12.5 Lakhs

30

20

Rs 12.5 Lakhs to Rs 15 Lakhs

30

25

Rs 15 Lakhs and above

30

30

*There is a rebate of Rs 12,500 on income up to Rs 5 Lakhs which technically means no tax up to Rs 5 Lakhs.

Let’s compare the tax saved if you earn income of Rs 15 Lakhs.

 

(Old) Income of 15 Lakhs

 

(New) Income of 15 Lakhs

0-2.5 Lakhs

0

0-2.5 Lakhs

0

Rs 2.5 Lakhs to Rs 5 Lakhs @5%

12,500

Rs 2.5 Lakhs to Rs 5 [email protected] 5%

12,500

5 Lakhs to Rs 10 Lakhs @20%

1,00,000

Rs 5 Lakhs to Rs 7.5 [email protected] 10%

25,000

10 Lakhs to Rs 15 Lakhs @ 30%

1,50,000

Rs 7.5 Lakhs to Rs 10 [email protected] 15%

37,500

Total

Rs 2,62,500

Rs 10 Lakhs to Rs 12.5 [email protected] 20%

50,000

 

[email protected]%

Rs 12.5 Lakhs to Rs 15 [email protected] 25%

62500

 

      Rs 2,73,000

Total

Rs 1,87,500

 

 

[email protected]%

7500

 

 

 

      Rs 1,95,000

You have actually saved Rs 2,73,000 – Rs 1,95,000 = Rs 78,000 by shifting to the new tax regime.

But, did you actually save Rs 78,000 by shifting to the new tax regime?

With the new tax regime you forego popular tax exemptions and tax deductions like HRA, LTA, Section 80C, Section 80D, Home Loan Interest under Section 24 and others.

Most salaried people use at least Section 80C, Section 80D and Home Loan Interest under Section 24.

Section 80C: You get a maximum deduction up to Rs 1.5 Lakhs a year under Section 80C. This is a collective deduction enjoyed by a number of financial instruments.

Section 24: You get a tax deduction on home loan interest up to Rs 2 Lakhs a year for self-occupied property.

Section 80D: You get a tax deduction on health insurance premium paid for self, spouse, kids, parents up to Rs 25,000 a year. It’s Rs 50,000 a year for senior citizens.

See Also: Will Middle Income Salaried Class Benefit From Union Budget 2020?

Let’s recalculate the taxes under the old regime after taking into account popular tax deductions:

Section 80C:  Rs 1.5 Lakhs a year.

Section 80D: Rs 20,000 a year. (Let’s assume health insurance premium of Rs 20,000 a year for self, spouse and kids).

Section 24: Let’s assume Rs 2 Lakhs a year for home loan interest.

Now let’s recalculate taxes under the old tax regime after accounting for Section 80C, Section 24 and Section 80D.

Income

Rs 15,00,000

Less

 

Standard Deduction

Rs 50,000

Section 80C

Rs 1,50,000

Section 80D

Rs 20,000

Section 24

Rs 2,00,000

Net Taxable Income

Rs 10,80,000

After accounting for the tax deductions you pay taxes of Rs 1,41,960 on net taxable income of Rs 10.8 Lakhs. The tax under the new regime was Rs 1,95,000. You actually incur an additional tax of Rs 53,040. (This doesn’t consider HRA which is another popular tax exemption).  

See Also: Union Budget 2019-2020: Major Takeaways

You have to decide whether to stick to the old tax regime or shift to the new tax regime. If you avail plenty of tax deductions and tax exemptions its best to stick to the old regime.

It also ensures continuity like if you have availed a life insurance plan, you would have to keep paying the premiums. You can’t just surrender the life insurance plan or you might suffer losses.

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