Income Tax Changes FY 2020-2021
Let’s talk about Personal Income Tax Changes for the Financial Year 2020-2021:
In Today’s budget, government has announced income tax payers will be provided with 2 options from FY 2020-2021 regarding how their income tax is calculated.
Under current regime, you are allowed the following commonly used deductions:
- 80C – 1,50,000
- 80CCD – 5,00,000
- Medical Insurance – 25,000
- Food – 36,000
- Fuel – 21,600
- Mobile – 12,000
- Standard Deduction – 50,000
- HRA (Approx) – 1,00,000
Total Deductions Allowed (commonly used ones) = 4,44,600
Let’s Assume, you earn 15L per year and you were claiming these deductions fully.
Your Tax under current Regime:
- (5L – 2.5L) * 0.05 + (10L – 5L) * 0.2 + (15L – 4.5L – 10L) * 0.3 = 127,500 INR.
Your Tax under new Regime:
- (5L – 2.5L) * 0.05 + (7.5L – 5L) * 0.1 + (10L – 7.5L) * 0.15 + (12.5L – 10L) * 0.2 + (15L – 12.5L) * 0.25 = 1,87,500 INR.
You will be paying INR 60,000 additionally as Tax if you opt for new tax regime.
If you were utilizing all the current tax benefits, then New Tax Regime won’t be beneficial for you. But you need to do a proper detailed study to understand which option will be good for you in the longer run.
Government has done a very clever thing to boost the economy without reducing direct tax collection. It has given the control of taxation to people.
Lot of people invest only to save taxes and providing an alternate option will enable them to spend more. This additional spending will boost the economy and any additional spending by people will result in additional indirect tax collection for the government, thereby doubling the benefits for government.
So why did market went down today?
SIP was the one of the regular source of Income for Banks & Insurance companies. Stock Market Indices has highest weightage of these stocks.
In the 2020 Budget, government has announced you can opt out of these tax saving instruments by opting for new tax regime. So this will have an impact on profit of Banks & Insurance companies. So they went down.
Moreover, LTCG was not abolished. Market was expecting it’s removal. So market went to deep red.
Hope this helps. If you have any queries, feel free to ask in the comments section.