FINANCE BILL 2020: Introduces Modification in the Income Tax Rate Structure

With the introduction of the Finance Bill, 2020 which seeks to amend the Income tax act, 1961 there has been a complete transformation in the Income tax slabs. The new amendment will provide momentum to the tax buoyancy in the long-run. It will certainly increase the direct tax base, ease of compliance, curbing tax evasion, transparency & accountability of Income tax authorities.

Income tax in India is categorized under the head of direct tax in India. Direct tax is a kind of tax that is to be paid directly to the government by the individual on whom the liability has arisen. This liability is non-transferable and this is the key differentiator between Direct tax & Indirect tax.

Direct Taxes are Broadly Categorized Under Two Heads viz.

A.    INCOME TAX: Individuals/HUF/taxpayers other than company are required to pay a certain amount of tax on the income which they have earned in the prevailing financial year.

B.    CORPORATE TAX: Just like Income tax, Companies have to pay taxes on their profit from the businesses.

What all constitutes final Taxable Income?

It’s not always the salary which is your taxable income but your taxable income is a combination of majorly five heads. To know all about these income heads, refer to the following table:

Income from salary	Wages, Pension, Annuity, Gratuity, Commission, Leave encashment, EPF Contribution
Income from House property	Rental income – property owned; other than those which are occupied by him.
Income from Profit/Gain from business or Profession	Profit in the business or gains earned in the profession, Interest received, salary/bonus to partner
Income from capital gains	Long term capital gains (LTCG) Short term capital gain (STCG)
Income from other sources	Interest on bank deposits, securities, dividend, royalty received lotteries, gifts, etc.

A.    Income tax slab which is applicable for the F.Y. 2019-20 and onwards

•  Individuals below 60 years. 

Less than 2,50,000	Nil
2,50,001 – 5,00,000	5%
5,00,001 – 10,00,000	12,500 + 20% Income above 5,00,000
Above 10,00,000	1,12,500 + 30% Income above 10,00,000

• Individuals above 60 years and less than 80 years.

Less than 3,00,000	Nil
3,00,001 – 5,00,000	5%
5,00,001 – 10,00,000	10,000 + 20% Income above 5,00,000
Above 10	1,10,000 + 30% Income above 10,00,000

•  Individuals above 80 years.

(Figure in Lacs)

Less than 5,00,000	Nil
5,00,001 – 10,00,000	20%
Above 10,00,001	1,00,000 + 30% Income above 10,00,000

[Note: Surcharges applicable]

• Total Income above 50 Lacs but less than 1 Crore     – 10% on computed Income tax.
• Total Income above 1 Crore but less than 2 Crore      – 15% on computed Income tax.
• Total Income above 2 Crore but less than 5 Crore      – 25% on computed Income tax.
• Total Income above 5 Crore                                         – 37% on computed Income tax.

B.    Income tax slab which will be applicable from F.Y. 2020-21

An additional option is given to the Income taxpayers in the Union budget 2020-21. Considering the slump in the economy and increasing the Income tax base, these new amendments in the Income tax act, 1961 are made flexible.

On satisfying a certain set of conditions, a HUF or an individual has the option to pay tax in the new Direct tax regime (F.Y. 2020-21 Onwards).

Less than 2,50,000	Nil
2,50,001 – 5,00,000	5%
5,00,001 – 7,50,000	10%
7,50,001 – 10,00,000	15%
10,00,001 – 12,50,000	20%
12,50,001 – 15,00,000	25%
Above 15,00,000	30%

However, this new Direct tax regime which has come out to be one of the biggest taxation reform in the Income tax act, 1961 since Independence brings in some criteria which is to be fulfilled.

• The option once exercised for a previous year shall be valid for that period and subsequent years.
• The option will become invalid in any previous year if the taxpayer fails to comply with the provisions of the act.
• The provision which needs to be compiled for this new income tax slab rates is that the total income computed is without:
  • Exemption or deductions.
  • Setting off any losses of the previous year.
  • Making necessary adjustments for depreciation.
  • Allowances/pre-requisites or whatsoever name they are called.

FREQUENTLY ASKED QUESTIONS (FAQ)

Q.   How is Income tax calculated?

• Income tax is calculated on the basis of the Income tax slab in which your Income range falls in. There are different sets of Income tax slabs depending on the age bracket you come under viz. Below 60 years, 60-80 Years & above 80 years.
• An individual’s final taxable income is calculated by making out some relevant exemptions/deduction from the income or  TDS,  which you have already paid and it needs to be reduced from your taxable salary.

Q.      What is the minimum salary to pay Income tax?

• For different age groups the minimum salary which is to be taxed is different, but with the recent amendments in the Income tax act, 1961; the limit of rebate under section 87A have been increased and now tax-payers earning an Income up to INR 5,00,000 will not have to pay Income tax.
• So, a minimum salary which is chargeable to Income tax is 5, 00,001 & above.

Q.      What is the difference between Direct tax & Indirect tax?

Direct Tax	Indirect Tax
Paid by individuals, HUF, firms, companies, etc.	Paid by the end consumer of goods & services
The burden of Income tax cannot be shifted	The burden of tax can be shifted For ex: GST
Reduce inequalities in society & it is progressive in nature	Enhance inequalities and are regressive in nature
Paid directly by a concerned person	Paid ultimately by the final consumer
Income Tax collection is difficult	Indirect tax collection is easier
For example Income tax, wealth tax, corporate tax, etc.	For example GST, Excise duty, customs duty, CVD, etc.

Q.      What is Income tax as per Income tax act, 1961?

• Income tax is a part of your income which you have earned in the complete financial year from various sources such as Income from salary, house property, Profit & gains from business, capital gains and various other sources.
• With a combination of all these Income sources, the Income tax authorities are able to compute the combined taxable Income of an individual.

Q.       How is advance tax calculated?

 As the name suggests, advance tax is something that is paid in advance even before the tax liability has arisen. It is also termed as pay as you earn tax and it is paid in advance instead of a lump-sum payment at the end of the financial year.

Q.    What is the last date for advance Income tax filing?

Prior to 15th June	15% of advance tax
15 June-15 September	45% of advance tax minus advance tax already paid
15 September-15 December	75% of advance tax minus advance tax already paid
15 December-15 March	100% of advance tax minus advance tax already paid

Q.      How to file an Income tax return (ITR)?

        STEP BY STEP PROCEDURE FOR ONLINE ITR FILING

•  Go to e-Filing portal on Income tax website 

• Enter PAN Card number which is the user ID, Password, Captcha code and then 'Login'.

• Tap on the 'e-File' and then 'Income Tax Return' link.
• Select Assessment Year, ITR Form Number, Filing Type, Submission Mode and Submit Online.
• Click on 'Continue'
• E-verify your Income tax return (ITR)

Q.      What is the procedure for the e-verification of ITR?

1.    Popularly there are two methods of ITR Verification which is:-

1.1.  OFFLINE METHOD (Paper verification): Physically send signed ITR-V through normal or speed post to "Centralized Processing Centre, Income Tax Department, Bengaluru”. Send a signed copy of the ITR-V form to Bengaluru for verification.

1.2.  ONLINE METHOD (Electronic verification): On Choosing 'I would like to e-Verify' option, e-Verification can be done through any of the following methods.

There are 5 ways of electronically verifying your ITR.

• E-verification with Aadhar OTP
• E-verification with Net Banking
• E-verification with Bank Account
• E-verification with Demat Account
•  E-verification with Bank ATM

2.     Click on 'Preview and Submit' button, Verify all the data entered in the ITR.

3.     Submit the ITR.

 

Read other Blogs :

• Highlights of Budget 2020
• How to file the income tax return in India
• How to E-Verify Your Income Tax Return 
• All about ITR filing for BEGINNERS
• Basics of Income Tax Return Filing for Beginners
• Mistakes to avoid while filing Income Tax Return
• Plan Income Tax Return: 3 Lesser Known Ways to Save Income Tax
• Online Income Tax Return Filing : Procedure,documents