In the previous article, highlights of the Interim Budget 2019 had been covered.

This blog will focus primarily on the income tax slab for fiscal 2019 (AY 2020-21).

Read on!

Let us first differentiate two key terms – gross income and taxable income.

Difference Between Gross Income and Taxable Income

Financial tips for the new employee

Many of us have heard about gross income and taxable Income. People are often confused and believe that the income tax is computed on gross income. This belief is entirely wrong as the income tax is charged on the taxable income.

So, let’s understand the difference between the two terminologies.

Gross Income

Gross Income is the total income including salary, income from house property, profit and gain of business or profession, capital gain from the sell/purchase of any real or financial asset.

This income is computed without availing for any deductions as outlined under Sections 80C to 80U.

Taxable Income

Taxable Income is the gross income that is reduced by the amount of all permissible deductions under Section 80C to 80U.

Therefore, your total income or taxable income will always be less than the gross total income.

Now lets move to the tax slabs.

Latest Income Tax Slabs for Fiscal 2019-20 (AY 2020-21)

Let us bifurcate our discussion to three categories of taxpayers viz.

  1. Individuals with age below 60 years
  2. Senior Citizens in the age group of 60-80 years
  3. Super Senior Citizens age above 80 years

Latest Income Tax Slab Rates for FY 2019-20 (AY 2020-21)

Income slab Individuals (Age below 60 years) Individuals (Age between 60 to 80 years) Individuals (Age over 80 years)
Upto Rs 2,50,000 Nil Nil Nil
Rs 2,50,001 to Rs 3,00,000 5% Nil Nil
Rs 3,00,001 to Rs 5,00,000 5% 5% Nil
Rs 5,00,001 to Rs 10,00,000 20% 20% 20%
Over Rs 10,00,000 30% 30% 30%

Now, is that all?

No, you will have to pay an additional surcharge that is applicable as per below rate.

Surcharge

  • 10% surcharge on income tax is levied if the total income exceeds Rs 50 Lakhs but below Rs 1 Cr.
  • 15% surcharge on income tax is levied if the total income exceeds Rs 1 Cr.
  • Health and education cess – 4% cess on income tax including surcharge. The cess replaces previously applicable 2% Education Cess and 1% Secondary and Higher Education Cess.

Please note, there is no change in the Income Tax Slab Rates for FY 2019-20. However, with changes in Section 87A announced during the interim budget 2019, an individual is liable to get the benefit of a tax rebate.

Previously, the limit under Sec 87A was up to Rs 3,50,000, and the deduction allowed was Rs 2,500. The same is now increased to Rs 5,00,000 with deduction available at Rs 12,500.

So, how do you calculate the income tax now?

Let’s Check Out a Few Examples.

Example A

Mr. X is under the 30% tax slab and below 60 years of age.

His taxable income is Rs 12,00,000 after deduction under all permissible sections. His income tax is computed as below –

Slab Amount Tax rate Tax
Rs 2,50,001 to Rs 3,00,000          50,000 5%            2,500
Rs 3,00,001 to Rs 5,00,000        200,000 5%          10,000
Rs 5,00,001 to Rs 10,00,000        500,000 20%        100,000
Over Rs 10,00,000        200,000 30%        60,000
       172,500

Example B

Mr. Y has a gross income of Rs. 7 lakhs, and he invests Rs 1.5 Lakhs in provident fund and Equity Linked Savings Scheme.

Also, he is entitled to the benefit of standard deduction which is Rs 50,000 as per new tax norms. This brings his taxable income to Rs 5,00,000.

Let us see Mr. Y’s tax computation.

Slab Amount Tax rate Tax
Rs 2,50,001 to Rs 3,00,000 50,000 5% 2,500
Rs 3,00,001 to Rs 5,00,000 200,000 5% 10,000
Rs 5,00,001 to Rs 10,00,000  NA 20%  –
Over Rs 10,00,000  NA 30%
Total Gross Tax 12,500
Rebate -12500
Net Tax Nil

Also, a lot of misinterpretation has been doing the rounds since Friday (February 1, 2019), when the finance minister announced the interim budget.

Please, note there is no change in the tax slabs, but still, an individual whose taxable income is less than Rs 5,00,000 can avoid paying taxes.

Words of Wisdom!

We believe meticulous planning concerning investments shall help in saving tax.

For example, the rule provides for home loan benefit of Rs 2,00,000. Also, you have a standard deduction of Rs 50,000 and section 80C of Rs 1,50,000 lakhs.

Lastly, it is believed that the move from the government shall improve the disposable income in the hands of the middle class.

This increment shall result in the growth of consumption driven sectors, such as fast moving consumer goods (FMCG), affordable passenger car vehicles, etc.

Also, the finance minister has done a great job in ensuring Modi’s mission 272 gets some security from middle-class individuals.

Disclaimer: The views expressed in this post are that of the author and not those of Groww