Income Tax Slab and Rates for the Financial year 2020-21 

The Hon’ble Finance Minister presented the Union Budget 2020 on 1st February 2020, which has proposed specific changes to the present income tax rates, which will be applicable for the financial year 2020-21 and subsequently, Finance Act 2020 has also been enacted. However, the new tax rates carry certain caveats before the taxpayers can adopt the reduced rates. As such, both the existing & new tax rate structures will continue to co-exist. 

Here is a summary of dual tax rate structure as would be applicable from financial year 2020-21 onwards:

Dual Tax Rate Structure 

The income tax slabs as applicable to the individual (other than resident senior citizen, who is 60 years or more at any time during the previous year) and HUF taxpayers for the financial year 2020-21 are as below: 

* The nomenclature ‘Tax Rate Structure A & B’ is not an official terminology for the income tax slabs and has been used for easy identification by the readers. Tax rates are also subject to applicable surcharge, if any, and higher education cess

Tax Rate Structure

A is the currently prevailing tax rate structure, which will apply to all the individuals, other than resident senior citizen, who is 60 years or more at any time during the previous year, and HUF taxpayers unless they opt to be taxed under Tax Rate Structure – B. There is no change in the tax rates currently prevailing and those made applicable in the financial year 2020-21 under the Tax Rate Structure – A. However, the new tax rate structure-B has also been enacted by the Govt. to simplify the tax calculation and compliances by the taxpayers. Under the Tax Rate Structure B structure, individual and HUF taxpayers can opt for reduced tax rates, but only if they choose to forego certain tax benefits as available to them in respect of Tax Rate Structure A under different provisions of the Income Tax Act. 

Tax Benefits to be Foregone under the New Tax Rate Structure

The taxpayers opting for Tax Rate Structure – B will have to forego certain tax benefits; the significant ones are listed below:

1. Standard Deduction available to all the salaried taxpayers under section 10(16)

2. Deduction towards Professional Tax deducted from Salary under section 10(16)

3. Deduction under Section 80C of up to Rs. 1.50 lakhs towards tax-saving payments and investments

4. Deduction towards Voluntary Contribution to NPS Account under Section 80CCDother than under sub-section (2) thereof, 

5. Deduction under Section 80D in respect of maintenance including medical treatment of a dependent who is a person with disability

6. Deduction under Section 80G towards eligible donations 

7. Deduction under Section 80TTA towards interest on savings account of up to Rs. 10,000

8. Deduction under Section 80TTB towards interest on savings and deposit accounts up to Rs. 50,000, available only to Senior Citizens of the age of sixty years or more at any time during the previous year

9. Exemption in respect of HRA/ LTA

10. Interest on Home Loan towards a self-occupied house property under section 24(b)

11. Deduction towards Family pension under Section 57 (iia)

12. Exemption in respect of income of a minor child under section 10(32)

13. Exemption in respect of free meal and beverages provided by the employer through vouchers under Rule 3(7)(iii) of Income Tax Rules.

The above lists down several significant and most commonly availed tax benefits which would be required to be foregone if Tax Rate Structure B is opted for. Several other tax benefits are required to be foregone under the new income tax provisions as enacted under the Finance Act 2020, and hence, the list above is not an exhaustive list. 

Availing the Option to be Taxed as per Reduced Tax Rates

The taxpayers who are not having any business income can choose between the Tax Rate Structure – A and B every year while furnishing their Income Tax Return (ITR). For the taxpayers with business income, the taxpayers can, within the specified time period, choose to be taxed under the Tax Rate Structure – B only once and thereafter, the option so exercised will continue to remain valid for all the subsequent years as well. However, such taxpayers have been allowed to withdraw such an option once and thereafter; the taxpayer will not be eligible to choose the tax rate structure - B again, provided he continues to have business income. 

The taxpayers must undertake a careful comparison of their tax liability under the current and the new tax rates and plan accordingly. 

Note: The information herein is provided for general information only for the investors of the UTI Mutual Fund Schemes (Schemes). Investors should not treat the contents as any advice relating to legal, taxation, investment or any other matter and also In view of the individual nature of the implications, are strongly advised to consult their tax/legal consultant with respect to the tax implications arising out of their participation in the Schemes or otherwise. Investors are advised to read and understand the concerned Scheme Information Document, Statement of Additional Information and other relevant documents, as modified from time to time, prior to making any transaction.