Income Tax in India: Income Tax Slabs and Rates
Introduction to income tax 2020–21
Is saving on income tax a priority for you at the end of each financial year? Union Budget 2020 has added a new method to help you save on taxes. For FY 2020–21, individual taxpayers now have a new optional taxation regime that they could use when filing their income tax return. Let’s find out what the new rules for income tax in India might mean for you.
Types of tax in India
Taxpayers in India are liable to pay two kinds of tax: Direct tax and Indirect tax.
Direct tax is a tax applied to your income, and you pay it directly to the government. While individuals pay income tax in India, businesses have to pay corporate tax.
Indirect tax is a tax you pay when buying goods and services. The seller collects the tax from you and passes it to the government. Goods and Services Tax (GST) is a form of indirect tax.
Income tax slabs for 2020–21
Taxpayers have a choice between the old and new taxation regimes in FY 2020–21. The income tax slabs are given below.
Slabs for income tax 2020–21: Old regime
1. Income tax slabs for the following groups:
- Individual (resident or non-resident) (age: below 60 years)
- Hindu United Family (HUF)
- Association of Persons (AoP)
- Body of Individuals (BoI)
- Any other artificial juridical person
| Up to Rs 2,50,000 | Nil |
| Rs 2,50,000–Rs 5,00,000 | 5% |
| Rs 5,00,000–Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
2. Tax slabs for resident senior citizen (age: 60 years and above but less than 80 years)
| Up to Rs 3,00,000 | Nil |
| Rs 3,00,000–Rs 5,00,000 | 5% |
| Rs 5,00,000–Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
3. Tax slabs for resident super senior citizen (age: 80 years and above)
| Up to Rs. 5,00,000 | Nil |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
Slabs for income tax 2020–21: New regime
The optional income tax 2020–21 slabs are the same for all individual taxpayers regardless of age. However, taxpayers who opt for this regime cannot claim up to 70 income tax deductions.
| Up to Rs 2,50,000 | Nil |
| Rs 2,50,000–Rs 5,00,000 | 5% |
| Rs 5,00,000–Rs 7,50,000 | 10% |
| Rs 7,50,000–Rs 10,00,000 | 15% |
| Rs 10,00,000–Rs 12,50,000 | 20% |
| Rs 12,50,000–Rs 15,00,000 | 25% |
| Above Rs 15,00,000 | 30% |
Pointers for both regimes
Rebate: A resident Indian whose total income does not exceed Rs 5 lakh qualifies for a rebate (under Section 87A) of up to Rs 12,500 on tax payable.
Further charges: The following charges additionally apply to all taxpayers:
- Surcharge:
- Income exceeds Rs 50 lakh but not Rs 1 crore: 10% surcharge on income tax
- Income exceeds Rs 1 crore but not Rs 2 crore: 15% surcharge on income tax
- Income exceeds Rs 2 crore but not Rs 5 crore: 25% surcharge on income tax
- Income exceeds Rs 5 crore: 37% surcharge on income tax
- 4% health and education cess on income tax and surcharge
Income tax deductions
Use the available tax deductions to reduce your taxable income. Here’s what you need to know:
| House Rent Allowance (HRA) |
Lower of
|
| Standard Deduction | Rs 50,000 |
| Leave Travel Allowance (LTA) | Can be claimed by salaried employees twice in every four years for costs incurred on domestic travel (railway, flight, or public transport) |
| Mobile Reimbursement | Can be claimed by salaried employees based on actual expenses incurred or amount provided as part of salary |
| Relocation Allowance | Can be claimed on certain relocation costs (e.g. car transportation cost, charges of packers and movers, train and air tickets for employee and family, accommodation paid for by employer during initial 15 days of relocation) |
| Sections 80C, 80CCC, 80CCD(1) | Up to Rs 1.5 lakh |
| Section 80D (Medical Insurance Premium) |
|
| Section 80DD (Expenses Incurred for Disabled Dependents) |
|
| Section 80DDB (Expenses Incurred for Specified Diseases) |
|
| Section 80E (Education Loan Interest Payment) | Can be claimed for up to eight assessment years or until loan is repaid, whichever is earlier |
| Section 80EE (Home Loan Interest Payment) | Up to Rs 50,000 (available after exhausting Section 24) |
| Section 80G (Donations to Specified Charities) | 50% or 100% deduction |
| Section 80QQB (Royalty for Book) | Up to Rs 3 lakh |
| Section 80RRB (Royalty for Patent) | Up to Rs 3 lakh |
| Section 80TTA (Interest on Deposits) | Up to Rs 10,000 |
| Section 80TTB (Interest on Deposits for Senior Citizens) | Up to Rs 50,000 |
| Section 24 (Home Loan Interest Payment) | Up to Rs 2 lakh for self-occupied property. |
Taxpayers who opt for the new regime will have to forego several tax deductions and exemptions. These include (among others):
- Exemption on various allowances (e.g. LTA, HRA, conveyance allowance, relocation allowance, etc.), children’s tuition fees, other special allowances under Section 10(14)
- Standard deduction
- Deduction on housing loan interest payment under Section 24
- Deductions available under Chapter VI-A (Sections 80C,80D, 80E, etc,), except for Sections 80CCD(2) and 80JJA
Tax-saving schemes
The following tax-saving schemes fall under Section 80C, fetching you up to Rs 1.5 lakh as tax deduction under the section.
1. Public Provident Fund (PPF)
This retirement savings scheme brings tax-free returns and you can invest as little as Rs 500 per year. The investment is locked in for 15 years, though partial withdrawals are possible after five years.
2. National Pension Scheme (NPS)
This scheme matures once you hit retirement at 60 years, thus encouraging long-term savings. Other than the Section 80C deduction, NPS allows an additional deduction of Rs 50,000 under Section 80CCD(1b).
3. Equity-Linked Savings Scheme (ELSS)
ELSS brings high returns and a short lock-in period of three years. Investors can choose between the growth option (returns are reinvested in the scheme) and the dividend option (regular interest pay-outs).
4. Unit-Linked Insurance Plan (ULIP)
This product combines life insurance with investment and maturity earnings are tax-free. To get the tax benefit under Section 80C, you must stay locked in for five years.
5. Senior Citizens’ Savings Scheme (SCSS)
This government-backed scheme is safe, provides interest payments every quarter, and has a five-year lock-in period. Interest earnings are tax-free up to Rs 50,000. The overall investment limit is Rs 15 lakh.
6. National Savings Certificate (NSC)
NSCs bring assured returns, much like a fixed deposit (FD). Once you invest in an NSC, you need not pay into the account year after year. But interest earnings are taxable.
7. Sukanya Samriddhi Yojana (SSY)
You can open an SSY account for up to two daughters aged less than 10 years. The return rate is around 8%, though it changes quarterly. Interest earnings are tax-exempt and the minimum annual investment is Rs 1,000.
8. Tax-saving FDs
Five-year tax-saving FDs are some of the most convenient modes of tax saving. The returns are guaranteed though the interest earnings are taxable.
9. Life Insurance
A traditional life insurance policy is not an investment but it safeguards your family’s future. The premium paid is tax-deductible under Section 80C, but you have to stay locked in for two years.
How to calculate income tax
Say, X earns Rs 12 lakh per year. He has Rs 1.5 lakh worth of investments under Section 80C, is eligible for the extra tax deduction of Rs 50,000 under Section 80CCD, and gets HRA of Rs 1.5 lakh from his employer. He also pays a medical insurance premium of Rs 20,000 for his family.
The first step is to calculate his taxable income:
| Gross Total Income | Rs 12,00,000 | Rs 12,00,000 |
| Less: Deductions under Section 80C | Rs 0 | Rs 1,50,000 |
| Less: Standard Deduction | Rs 0 | Rs 50,000 |
| Less: HRA Deduction | Rs 0 | Rs 1,50,000 |
| Taxable Income | Rs 12,00,000 | Rs 8,50,000 |
Now, let’s calculate how much tax he is liable to pay under the new regime:
| Up to Rs 2,50,000 | Nil | Rs 0 |
| Rs 2,50,000–Rs 5,00,000 | 5% | Rs 12,500 |
| Rs 5,00,000–Rs 7,50,000 | 10% | Rs 25,000 |
| Rs 7,50,000–Rs 10,00,000 | 15% | Rs 37,500 |
| Rs 10,00,000–Rs 12,50,000 | 20% | Rs 40,000 |
| Total Tax Payable | Rs 2,27,500 |
And let’s see what his dues are if he chooses the old taxation regime:
| Up to Rs 2,50,000 | Nil | Rs 0 |
| Rs 2,50,000–Rs 5,00,000 | 5% | Rs 12,500 |
| Rs 5,00,000–Rs 10,00,000 | 20% | Rs 1,00,000 |
| Above Rs 10,00,000 | 30% | Rs 60,000 |
| Total Tax Payable | Rs 1,72,500 |
In this case, X has more tax savings under the old regime.
But this is a very simple example. Which regime is better for you will depend on the particulars of your income, expenses, and investments. So, make sure to calculate your tax payable under both regimes before making a choice. Use an income tax calculator if you need help.
Income tax payment
Income tax payments are mainly of four types, based on when and how they are paid.
- Tax deducted at source (TDS): Your employer deducts TDS from your salary throughout the financial year. The deduction reflects in your payslip.
- Advance tax: This is payable by those earning non-salary income (e.g. freelancers, professionals, independent consultants). If you pay tax exceeding Rs 10,000 in a year, you may need to pay advance tax.
- Self-assessment tax: You need to pay this at the time of filing your tax return.
- Regular assessment tax: Taxpayers sometimes receive a notification about outstanding dues from the Income Tax Department. These represent regular assessment tax.
To pay income tax online, log in to the tax filing website and fill in ‘Challan No. /ITNS 280’. Next, choose ‘(0021) Income Tax (Other than companies)’, enter your details, and select the type of tax you wish to pay. You can pay via net banking or debit card.
If you prefer offline channels, collect Challan 280 from your bank and pay by cheque or cash.
Income tax FAQs
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Q What are the important dates for income tax?A
Mark these four dates on your calendar:
- 31 January: deadline for submitting your tax-saving investment proofs
- 31 March: last date for completing your tax-saving investments and payments
- 31 July: due date for filing income tax return
- October–November: cut-off for completing your income tax return verification
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Q What is the period for income tax computation?A
Income tax applies on your annual income in a financial year. The financial year stretches from 1 April to the following 31 March.
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Q Do all individual taxpayers pay advance tax?A
Advance tax applies to non-salaried taxpayers who do not pay TDS. That includes freelancers, the professional classes (e.g. lawyers, doctors), consultants, and those who work on contract basis. Sometimes salaried persons may also need to pay advance tax if they earn from non-salary sources (e.g. from rental income).
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Q How do I deposit self-assessment tax or advance tax?A
Log in to www.incometaxindia.gov.in to fill in Challan 280. You could pay the tax dues online by using your debit card or net banking. Another option is to pay by cash or cheque at your bank.
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Q Which of the two taxation regimes should I choose?A
Calculate your income tax liability based on your annual income and applicable tax benefits under both taxation regimes. This will help you figure out which one brings greater tax savings. An income tax calculator could help in this regard.
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