The Union budget is a much-awaited document for experts and common people alike for it contains a slew of measures that will directly impact one’s disposable income. Financial year 2020-21 saw an introduction of a new taxation regime that will coexist with the old regime which has been continued for 2021-22. While most have welcomed this change with open arms, few others seem to find the flaws to be far too many. The changes in the income tax slabs and the impact it has on the taxpayer has been explored below.
Different Tax Slabs for Salaried Individuals
Income tax is levied based on different ranges of income, and these are called slabs. Income tax slab rates specify the income limits and applicable taxes. These slabs may or may not change with each budget session.
Income Tax Slab Rates for Financial Year 2020-21 (Assessment Year 2021-22)
Jeetu, Neetu and Lilithu receive INR 12,00,000, INR 2,40,000 and INR 5,60,000 respectively as their salaries. Their income tax under the new regime can be calculated using the following table-
| Total Income (INR) | New Regime |
| Up to 2.5 lakh | Nil |
| 2.5 to 5 lakh | 5% |
| 5 to 7.5 lakh | 10% |
| 7.5 to 10 lakh | 15% |
| 10 to 12.5 lakh | 20% |
Jeetu has a tax liability of INR 1,19,600, Neetu has a tax liability amounting to zero, and Lilithu has to pay INR 19, 240 as tax.
Please Note: the amounts were calculated with the help of a tax calculator available online.
Having understood the manner in which tax is calculated under the new regime, it is also important to understand the main differences between the old and the new regime. They are as follows -
| Basis | Old Taxation Regime | New Taxation Regime |
| Main Feature | This system has higher tax rates but is accompanied with a lot of options to reduce taxes. | This system has more slabs, a lower tax rate but no way to reduce the taxes payable. |
| Tax Slabs | There are four tax slabs available. | There are seven tax slabs available. |
| Options Available for Reduction in Taxes | Nearly 70 exemptions and deductions are present and can be used to reduce tax liability. | This option is not available. |
| Greatest Advantage of the Regime | Scope for saving on a lot of money if there are a lot of deductions and exemptions that one can claim. | The taxpayers do not have to rush to invest their money in tax-saving schemes and insurances or park their money in avenues which are not aligned with their financial goals, just to save tax. |
| Flexibility and Simplicity | Less flexible are more difficult to comprehend due to the different exemptions and deductions. | More flexibility and tries to simplify the process. |
However, there are certain conditions that ought to be fulfilled if one has to opt in for the new regime and avail the benefits that it has to offer. They are –
- They must not have any business income. If an individual with business income has claimed deductions and tax exemptions available under the Income Tax Act, then it will be assumed that he or she has chosen the old regime and he or she will not be able to opt for a new tax regime again in their lifetime.
- If one has opted for the new tax regime, then he or she cannot change the same during the financial year for the purpose of calculation of TDS.
- In case the income consists of business or professional income and one is already a part of the new tax regime, then the option to withdraw from it is available only once.
Importance of Paying Your Taxes on Time
There exists a moral obligation on every salaried individual who earns a salary that falls within the tax slabs to file returns accurately and on time. But there are some adverse repercussions for not paying the tax on time too. For instance, one will be liable for paying late filing fees under Section 234F of the Income Tax Act, 1961 and the amount that is levied as penalty will depend on the income bracket that one falls under. The taxpayer is also required to pay interest on delay of filing of returns under Section 234A of the Act calculated at the rate of 1% per month from the due date.
Also, if the ITR is not furnished on time, then one will be deprived of receiving these excess tax refunds at the earliest. In circumstances that one has incurred any losses during the financial year under the capital gains head or any loss in the business, then not filing the ITR within the due date will deprive the assessee of carrying forward these losses to the next year and setting these off against the income in the future years.
Conclusion
The union government has tried to make the life of the salaried person much easier by ensuring that there is a more clear-cut tax regime with minimum compliance costs. It is best to learn about these changes and leverage the benefits it has to offer after due consideration.