What Changes in Budget 2020 for Individual Taxpayers (Salaried)?
Latest budget (2020) presentation and the market crash have set the tone for the gloomy financial year of 2020-21, especially for individual taxpayers. The market was abuzz with the hopes of a people-friendly deduction raising direct tax announcements. However, much like their geopolitical moves, this government has thrown another googly for the humble taxpayers of India. Or is it so?
Let’s find out. Given below are five tables explaining how new direct tax regime of 2020 differs from the old. These are simplified estimates and do not account for deductions due to allowances some of which are still available.
One thing to remember, before we begin, is that you have an option to opt for the new tax regime or stay within the old tax regime.
First, The New Income Tax Slabs
The new tax slabs look closer to their counterparts in more developed economies like Hong Kong and the US&A. Do they offer any real advantages to taxpayers?
Let’s move on to see.
Tax Payable If No Deductions Claimed
As per the statement of Fin. Minister, Nirmala Sitharaman, in the parliament, many salaried taxpayers are not claiming the deductions. Thus, the web needs more simplification.
Here’s what happens if you are one of those taxpayers not investing to save tax, but you opt for new regime of taxation:
You wouldn’t be wrong if you feel like choosing between a hammer and an anvil. But, this is not it. What if you are one of those avid investors who religiously save taxes through investments under section 80C, 80D, and so on?
Let’s move on.
Deductions You Can Claim Through Investments
These were the few major deductions claimed by individual salaried taxpayers. If you choose to stick to the old regimen these are the deductions which will reduce your taxable income.
See what do these sections include and other available deductions here: Tax Saving Schemes Under Section 80C Of Income Tax Act For Salaried And Self-Employed, A.Y. 2020-21
How Much Would You Have to Pay?
Now that we know what deductions are there and how much can we claim, let’s calculate what happens if we switch to the new tax regime. But, before that, get a perspective of the old regime.
Tax Payable With Deductions Under Old Regime
So this is what your annual tax liability would look like if you continue to follow the old regime and you are investing to save tax. But what if you switch to the new regime.
Tax Payable With Deductions Under New Regime
Overall, the new regime looks slightly better, even without the complex web of income tax deductions. That is, except when you cross beyond Rs. 20 Lakh per annum in taxable income. Afterwards, your tax payable starts to increase beyond what it would be in the old regime.
The Big Question – Which One to Choose?
In the next financial year, those who prefer to go with market returns over tax saving have something to cheer for. And I know few of my esteemed friends who do. Those who were expecting a huge waiver, sorry, not this time. Maybe next year.
Here’s a comparative picture of possible tax liabilities with deductions in place under both old and new tax regimes:
Budget 2020 exemptions removed! Income tax relief only if you forgo these tax benefits