Introduction

In our country, income tax is collected from individual taxpayers through a slab system that has different rates assigned to various slabs. The trend is that the tax rates keep getting higher as the income slab increases. These tax slabs are revised in every budget.

Understanding Current Tax Slabs and the New Regime

The taxation method our country follows is a progressive one, which means that the more you earn, the more you pay in the form of tax. The applicability of income tax depends on different factors like residential status, age of individual, income and category.

The new section 115BAC was inserted in the budget 2020 by the tax department to introduce an original concept of the tax regime. This states that from the financial year 2020-2021 (the assessment year 2021-22) an individual and Hindu Undivided Family will have the option to choose between the old and new tax regime. Both the old and new regimes have different tax slabs and their associated exemptions and deductions.

Individual taxpayers are divided into three categories based on their age-

  • Resident and non-resident Individuals below 60 years
  • Senior citizen residents (includes individuals within the age group 60 years and 80 years)
  • Super senior citizen residents (includes individuals above 80 years)

If citizens belonging to the senior or super senior category choose to adopt the new tax regime, then the perks of higher exemption limit will not be available to them. This means the exemption limit of Rs 3 lakh for senior citizens and Rs 5 lakh for super senior citizens will not be offered to citizens of these categories by the new regime. So, under the new optional system, the fundamental limit of exemption for all taxpayers will remain fixed at Rs 2.5 lakh.

Based on the new budget, if a taxpayer chooses to follow the new regime, then his income will be taxed in the following manner-

Total income per year Income tax rate
Up to Rs 2,50,000 0
From Rs 2,50,001 to Rs 5 ,00,000 5%
From 5,00,001 to Rs 7,50,000 10%
From Rs 7,50,001 to Rs 10,00,000 15%
From 10,00,001 to Rs 12,50,000 20%
From 12,50,001 to Rs 15,00,000 25%
Above Rs 15,00,000 30%

Individuals who have a net taxable income in the Rs 2,50,001 to Rs 5,00,000 income bracket are eligible to avail a tax rebate amounting to Rs  12,500. This is under the section 87A of the Income Tax and is applicable for both the current and the new tax regimes. So, this means that individual taxpayers who have net taxable income in this income bracket will carry on with paying zero tax.

When you are considering which tax regime you wish to choose, you need to consider some crucial points. Under the new tax, you will not be able to avail certain benefits like the deductions that are permitted under section 80C. Section 80C allows a tax deduction of a maximum sum of Rs 1.5 lakh for investments made in specific instruments and other expenditure. You will also not be eligible for tax exemption under section 80D for medical insurance. Other exemptions like house rent allowance, conveyance, children education allowance, leave travel allowance, and others will also not be offered in the new tax regime.

Individuals who choose the existing tax regime for themselves will continue to pay tax at the same rates for the financial year 2020-21 as they do for the financial year 2019-20. So, the Income-tax slab for senior citizen effectively remains the same. The new tax proposals will be passed by the parliament soon and are scheduled to come into effect from 1st April 2020.

If we go by the current income tax slabs, resident individuals below 60 years are taxed in the following way. Individuals with a taxable income of up to Rs 2.5 lakh are exempt from tax, 5% tax is charged for people who have incomes that fall between Rs 2,50,001 to Rs 5 lakh, 20% is charged if the salary ranges from Rs 5,00,001 to Rs 10 lakh. For income that goes upwards of Rs 10 lakh, 30% tax is levied.

Senior citizen Tax Slabs

Income Tax Slabs for Senior Citizens (from 60 years up to 80 years old) for the Financial Year 2019-20 (the Assessment Year 2020-21)

Income Tax Slabs Tax Rate for Senior citizens (60 Years and above but less than 80 Years)
Up to Rs 3,00,000* 0

 

From Rs 3,00,000 – Rs 5,00,000 5%

 

From Rs 5,00,000 – 10,00,000 20%
More than Rs 10,00,000 30%

You should note that on the tax amount calculated based on the above rates, an extra 4% cess will apply to Health & education. If senior citizens opt for the current tax regime, they will continue to pay the same taxes for the next financial year (2020-21).

Let us understand how tax is calculated for a senior citizen with the help of an example. Let us assume that a senior citizen earns a salary of Rs 4, 00,000. The standard deduction applied on this is Rs 50,000, so the income is Rs 4,00,000 – Rs 50,000= Rs 3,50,000. The senior citizen also earns an income from house property amounting to Rs 2, 50,000 and earns Rs 50,000 from fixed deposit interest. Adding the three of these up will give us a total gross income of Rs 6, 50,000. If we consider deduction under 80C (Rs 1.5 lakh), the taxable income now becomes Rs 5, 00,000.  According to the table above, the income tax rate is 5%, which is calculated at Rs 10,000. According to section 87A, the tax rebate applied in this case is of Rs 10,000, so the tax this senior citizen has to pay is nil.

Tax Slabs for Super Senior Citizens

Income Tax Slabs for Super Senior Citizens (80 Years Old Or More) for the FY 2019-20 Financial Year 2019-20 (the Assessment Year 2020-21).

Income Tax Slabs Tax Rate for Super Senior Citizens (80 Years and above)
Up to Rs 5,00,000* 0
From Rs 5,00,000 – 10,00,000 20%
More than Rs 10,00,000 30%

If a super senior citizen opts for the current tax regime, he or she will continue to pay the same taxes for the next financial year (2020-21).

Things to Keep in Mind

  1. According to the announcement of budget 2019, the income tax slabs and applicable rates have not been altered.
  2. A rebate amount of Rs 12,500 is offered under section 87A to all taxpayers who have taxable income amounting to Rs 5 lakh.
  3. The standard deduction applicable for the financial year 2019-20 is Rs 50,000. 

Frequently Asked Questions

  1. How to calculate tax liability?
    The tax liability applies to the income calculated after deductions and other tax-exemptions.
  1. How do I pay taxes?
    You can pay tax both offline and online. The offline method requires you to visit a bank and fill up a challan and pay the tax amount. You can also pay taxes using any of the authorized bank’s net banking facility.
  1. What is the period on which income tax is calculated?
    Income tax is calculated on a person’s annual income. The period from 1st April to 31st March of the next year is calculated as one year according to the Income Tax Law.
  1. How do I know the details of my tax payment?
    After the tax applicable to you is deposited, the total amount of tax that has been deposited against your PAN will be displayed in Form 26AS. The statement can be downloaded from your account from the income tax website.