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Wednesday 23 December 2020

Income Tax slab for F.Y. 2020/21 and A.Y. 2021/22

 Income Tax slab for F.Y. 2020/21 and A.Y. 2021/22

 Income tax slab rate for New Tax regime -FY 2020-21 – Why is it optional?

In this new regime, taxpayers has an OPTION to choose either :

To pay income tax at lower rates as per New Tax regime on the condition that they forgo certain permissible exemptions and deductions available under income tax, Or

To continue to pay taxes under the existing tax rates.The assessee can avail rebates and exemptions by staying in the old regime and paying tax at the existing higher rate.

Income tax slab rate applicable for New Tax regime – FY 2020-21.

Example for Old Tax regime Vs New Tax regime & which is better?

The new tax regime can largely benefit middle class taxpayers who have a taxable income upto Rs 15 lakh. Old regime is a better option for high-income earners.

The new income tax regime is beneficial for people who make low investments. As the new regime offers seven lower income tax slabs, anyone paying taxes without claiming tax deductions can benefit from paying a lower rate of tax under the new tax regime. For instance, assessee having total income before deduction up-to Rs 12 lakh will have higher tax liability under the old system if they have investments less than Rs 1.91 lakh. Therefore, if you invest less in tax-saving schemes, go for the new regime.

That being said, if you already have in place a financial plan for wealth creation by making investments in tax-saving instruments; mediclaim and life insurance; making payments of children’s tuition fees; payment of EMIs on education loan ;buying a house with a home loan; and so on, the old regime helps you with higher tax deductions and lower tax outgo.

In light of the above and considering the new income tax regime, if taxpayers want to opt for the concessional tax rates, they may evaluate both regimes. Hence, it is advisable to do a comparative evaluation and analysis under both regimes and then choose the most beneficial one as it may vary from person to person.

Let’s take an example of comparing the Old & New tax regime of an assessee with Rs 10 Lakh income.

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