Union Budget 2020: New Income Tax Slab FY 2020-21 Option Worthy for Individuals and HUF?

Finance Minister, while presenting Union Budget 2020, gave a surprise with new income tax slab option for individuals and HUF. This was in line with options provided to domestic companies by insertion of section 115BAC in the Act.

New Income Tax Slab FY 2020-21 (

Optional)

Total Income (Rs)	Rate
Upto Rs. 2,50,000	Nil
From 2,50,001 to 5,00,000	5%
From 5,00,001 to 7,50,000	10%
From 7,50,001 to 10,00,000	15%
From 10,00,001 to 12,50,000	20%
From 12,50,001 to 15,00,000	25%
Above 15,00,000	30%

The option can be exercised every year where the individual or the HUF has no business income, and in other cases the option once exercised for an year shall be valid for all subsequent years.

Deductions You Can’t Claim in New Tax Regime/Slab Option

• Standard Deduction for Salaried Employees
• Leave travel concession
• House rent allowance
• Children Education Allowance
• Children Hostel Allowance
• Transport allowance
• Some of the other allowance in clause (14) of section 10
• Allowances to MPs/MLAs as contained in clause (17) u/s 10
• Allowance for income of minor as per clause (32) u/s 10
• Exemption for SEZ unit u/s 10AA
• Professional Tax
• Entertainment Allowance
• House Loan Interest u/s 24
• Additional deprecation
• Deductions under section 32AD, 33AB, 33ABA
• Various deduction for donation for or expenditure on scientific research
• Deduction under section 35AD or section 35CCC;
• Any deduction under chapter VIA
• Set off of any loss on account of depreciation or any other heads of income
• No exemption or deduction for allowances or perquisite

Deductions Allowed as per New Tax Slab/Regime

• Transport Allowance granted to a divyang employee to cover expenditure on commuting between place of residence and office
• Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office
• Any Allowance granted to meet the cost of travel on tour
• Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty
• Deduction under section 80CCD – employer contribution on account of employee in notified pension scheme
• Deduction under section 80JJAA for generating new employment.

Overall, the picture is not very attractive for individuals who are claiming deductions of more than 250,000 in their regular income tax returns. Especially for Salaried employees drawing salary upto Rs. 6,50,000 with deductions of at least Rs. 1,50,000

An Illustration to check the amount of deductions and decide whether you should opt for new income tax slab for FY 2020-21 or not:

Gross Total Income	Deductions Not Allowed as per New Scheme	Tax as per Old Scheme	Tax as per New Scheme
600,000	50,000	22,500	22,500
700,000	100,000	32,500	32,500
750,000	125,000	37,500	37,500
800,000	137,500	45,000	45,000
900,000	162,500	60,000	60,000
1,000,000	187,500	75,000	75,000
1,100,000	187,500	95,000	95,000
1,250,000	208,335	125,000	125,000
1,300,000	216,666	137,500	137,500
1,400,000	233,335	162,500	162,500
1,500,000	250,000	187,500	187,500
1,600,000	250,000	217,500	217,500
1,700,000	250,000	247,500	247,500

For a salaried employee drawing salary more than Rs. 15,00,000, the benefit of reduced tax is Rs.75,000 but if the value of deductions foregone is more than Rs. 2,50,000 the new tax regime/slab is not worthy.

This Budget 2020 move is helpful only for those who do not go for any savings plan or special tax saving incentives.