New Reduced Tax Slabs – What it means for you?

The highlight of Budget 2020 speech was new, simple and reduced income tax slabs. It was very well received by the audience and people were exited that they would save a lot of money!

But as usual the devil lies in the details. We went through the finance bill and as we read through it seemed like the new tax slab structure would be beneficial for only very special cases and that too marginally.

Existing Vs New Tax Slabs in Budget 2020

Existing Vs New Tax Slabs (without tax exemptions) in Budget 2020

If you would have heard Finance Minister speech, she talked about forgoing some deductions if you want to avail new tax slab.

Read: How to Pay 0 Income Tax on Rs 20+ Lakh Salary?

List of deductions excluded from New Tax Regime (Section 115BAC)

  1. Leave travel concession as contained in clause (5) of section 10;
  2. House rent allowance as contained in clause (13A) of section 10;
  3. Some of the allowance as contained in clause (14) of section 10;
  4. Allowances to MPs/MLAs as contained in clause (17) of section 10;
  5. Allowance for income of minor as contained in clause (32) of section 10;
  6. Exemption for SEZ unit contained in section 10AA;
  7. Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in section 16;
  8. Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);
  9. Additional deprecation under clause (iia) of sub-section (1) of section 32;
  10. Deductions under section 32AD, 33AB, 33ABA;
  11. Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause(iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;
  12. Deduction under section 35AD or section 35CCC;
  13. Deduction from family pension under clause (iia) of section 57;
  14. Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of the employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.

I have highlighted the common tax exemptions for most salaried.

Download: Free ebook for Income Tax Planning for FY 2019-20

Below is an estimate of tax exemptions you might have to forgo for new tax regime.

  • Standard Deduction – Rs 50,000
  • 80C – Rs 1,50,000
  • 80CCD(1B) – Rs 50,000
  • 80D – Rs 25,000 (assumed)
  • LTA – Rs 25,000
  • HRA/Interest on Home Loan – Rs 2,00,000
  • Total = Rs 5 Lakhs

You need to forgo Rs 5 lakh tax deduction to shift to new tax regime. I do not see how it would make any sense. The new regime is only beneficial to people who had very tax inefficient salary or did not avail on any deductions in the past (like senior citizens on interest & pension income). We show this by some examples:

Reduced Tax Slabs in Budget 2020

Reduced Tax Slabs in Budget 2020

New Vs Old Tax Slab comparison

Also Read: 25 Tax Free Incomes & Investments in India

Salary Income: 15 Lakhs

Assuming a salaried person has total income of Rs 15 Lakhs and claim tax exemption of Rs 3 lakhs as follows:

  • Standard Deduction – Rs 50,000
  • 80C – Rs 1,50,000
  • 80CCD(1B) – Rs 50,000
  • 80D – Rs 25,000 
  • LTA – Rs 25,000

What would be beneficial for him? Below is the comparison:

HeadersOld Tax Slab New Tax Slab 
Total Income1,500,0001,500,000
Total Exemption300,0000
Net Taxable Income1,200,0001,500,000
Income Tax172,500187,500
Cess @ 4%6,9007,500
Total Tax with Cess179,400195,000

As you can see he is good with the older tax regime.

Salary Income: 10 Lakhs

Assuming a salaried person has total income of Rs 10 Lakhs and claim tax exemption of Rs 2 lakhs as follows:

  • Standard Deduction – Rs 50,000
  • 80C – Rs 1,50,000

What would be beneficial for him? Below is the comparison:

HeadersOld Tax Slab New Tax Slab 
Total Income1,000,0001,000,000
Total Exemption200,0000
Net Taxable Income800,0001,000,000
Income Tax52,50075,000
Cess @ 4%2,1003,000
Total Tax with Cess54,0078,000

As you can see he is good with the older tax regime.

Is New Tax Slab any good?

I think the option of new tax slabs just complicates taxation and now you must do additional calculations – one with tax deductions and other without it. In most cases you would be better off with the existing tax slabs. All in all the new tax slab is just a jumla without any substance in it.

3 thoughts on “New Reduced Tax Slabs – What it means for you?

  1. Siddiqur Rehman says:

    Such a let down, this government is all about blowing trumpet but fail to deliver any credible outcome. Really disappointed ☹️.
    Thank you for making the income tax new regime so comprehensive.

  2. If the FM thinks everybody will be very exited with the intentionally created confusion and jump into the new tax slab to do more expenditure and less savings it’s a foolish idea.
    For very few new generation people who are paying EMIs for Car/Luxury etc etc may fall in the trap not the mass in a gloomy future.

  3. I studied carefully. Thank you for the detailed information.
    I am a senior citizen aged 70. I want to know whether exemption of Rs. 50000/- from Interest on Deposit is allowed under
    under new tax scheme.
    Thank you sir.

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