Automated Income Tax Calculator All in One for Govt and Non-Govt Employees for the F.Y.2020-21 as per New and Old Tax Regime U/s 115BAC

Automated Income Tax Calculator All in One for Govt and Non-Govt Employees for the F.Y.2020-21 as per New and Old Tax Regime U/s 115BAC.
The year 2020 has brought a totally new experience to the humankind and made us realized our true status against nature. All inventions and developments made by mankind are useless against nature and its power. Everyone in the world has suffered, directly or indirectly, due to COVID -19 pandemic.

Due to Lockdown and interruption in the economic cycle, the financial budget of every household in the country especially the middle class has affected badly. Under this situation, the majority of taxpayers are struggling to manage their finances and taxes.

Download Automated Income Tax Revised Form 16 Part B which can prepare at a time 100 Employees Form 16 Part B for the financial year 2019-20

In order to provide significant relief to the individual taxpayers and to simplify the Income-tax law, the Finance Act 2020, has recently introduced new concessional personal tax regime, (hereinafter referred to as 'New tax regime'), by inserting Section 115BAC in the Income-tax Act,1961 ('the Act') with effect from the Financial year 2012-21 (The assessment year 2021-22)".

Under the situation of Covid-19, with the intention to reduce the final tax liability, many taxpayers are trying to figure out what is the new tax regime, which regime should have opted, and which tax regime would be more beneficial to them, etc. In this article, we have tried to provide an understanding about New tax regime in details along with the advantages and disadvantages and it's the comparison with the existing tax regime.

A. New tax regime:

Under existing tax structure (hereinafter referred to as 'Regular tax regime'), the Individual and Hindi Undivided Family has 3-tier slab rates of tax of 5%, 20% and 30% and also has the option for buckets of deductions, allowances and exemptions. Whereas under the new tax regime, the taxpayer has 6 tier concessional slab rates of tax of 5%,10%, 15%, 20%, 25% and 30%. However, the majority of deductions, allowances and exemptions, which are allowed under regular tax regime, are not allowable.

The year 2020 has brought a totally new experience to the humankind and made us realized our true status against nature. All inventions and developments made by mankind are useless against nature and its power. Everyone in the world has suffered, directly or indirectly, due to COVID -19 pandemic.

Under existing tax structure (hereinafter referred to as 'Regular tax regime'), the Individual and Hindi Undivided Family has 3-tier slab rates of tax of 5%, 20% and 30% and also has option for buckets of deductions, allowances and exemptions. Whereas under new tax regime, the taxpayer has 6 tier concessional slab rates of tax of 5%,10%, 15%, 20%, 25% and 30%. However, the majority of deductions, allowances and exemptions, which are allowed under regular tax regime, are not allowable.

Slab rate of tax:

The slab rates of tax under regular tax regime and new tax regime are tabulated as under for easy reference:

Rebate u/s. 87A: Under both the tax regime, new as well as regular, no tax is payable on income up to Rs. 2,50,000/-. Further, Rebate under section 87A of the Income-tax Act 1961 up to 12500 is available if the total taxable income is up to Rs. 5,00,000 in a financial year.

Optional: The new tax the regime is optional for the taxpayer. The taxpayers can evaluate his/her tax liability under both, regular tax regime as well as new tax regime and can choose more beneficial regime for the Financial Year 2020-21 i.e Assessment Year 2021-22 or any subsequent Assessment Year.

The taxpayer having no business income can exercise his option of choosing between the two tax regimes, every year, based on his entitlements of 'specified deductions'. However, for the taxpayer having a business income, the option once exercised shall be valid and shall be applicable for that Assessment Year in which the option is exercised and for all subsequent Assessment Years. In simple words, the taxpayer, having no income from business or profession, can switch between the new tax regime and regular tax regimes every year, whereas, the taxpayer, having income from business or profession, cannot switch between the new tax regime and regular tax regimes every year. Further, if the taxpayer having income from business or profession opts for the new tax regime, such taxpayers get only one chance in their lifetime to come back to the regular tax the regime and will not be eligible for opting new tax regime again unless the taxpayer's business income ceases to exist.

Download Automated Income Tax Revised Form 16 PartA&B which can prepare at a time 100 Employees Form 16 Part A&B for the Financial Year 2019-20

No classification of Individuals: There is no classification of Individual like a senior citizen or super senior citizen for the purpose of tax rate and therefore, the basic exemption limit of Rs. 2,50,000/- will remain the same for all the taxpayer under the new tax regime.

Conditions for availing new tax regime: The taxpayers willing to opt a new tax regime is required to fulfil certain conditions provided under section 115BAC of the Act to opt for the new tax regime. One of the conditions is that various exemption/deduction/ allowance (discussed hereunder) will have to be forgone by the taxpayer.

Certain deductions under chapter VI-A are allowed: The deductions for i) Deduction for NPS, over & the benefit of u/s 80CCD(1a) (Section 80CCD(1b)) & ii) Deduction for Hiring New Employees above of 50 Employees (Section 80JJAA), are allowed under both tax regime.

B. Deduction/exemption/allowance/losses which are not allowed (income-head wise) under new tax regime: Income From Salary:

Section 10(5) – Leave Travel Concession, Section 10(13A) – House Rent Allowance, Section 10(14) – Allowance other than allowances as may be prescribed for this purpose

Section 10(17) – Allowance to MP's / MLA's Section 16 – Standard deduction (Rs. 50,000), deduction of entertainment allowance for government employees (5000) and Professional Tax (Rs. 2500)

Section 10(32)- Deduction of income of minor child up to ₹1,500 per child for maximum 2 children Section 57 (iia)- Deduction from family pension

Income from House property: Section 24(b)- Interest on house property in respect of the self-occupied or vacant property (Loss from rented house property shall not be allowed to be set off including other head and would be allowed to be carried forward)

Deduction under Chapter VI-A: Section 80C –

Deduction in life insurance premium, deferred annuity, contributions to P.F.

Section 80CCA – Exemption of deposits under (N.S.C.)National Savings Scheme

Section 80CCB - Deduction in respect of an investment under ELSS

Section 80CCC - Exemption of contribution to Pension Funds (NPS)

Section 80CCD –Exemption of contribution to the pension fund of Central Government employees.

Section 80D – Exemption of health insurance premium below 60 years Max Rs.25000/- and above 60 years for Sr.Citizen Rs.50,000/-

Section 80DD – Deduction related to Medical Treatment of Disabled Person,

Section 80DDB – Deduction related to medical expenses of specified diseases, Section

80E – Deduction related to Interest on Higher Education Loan,

Section 80EEA – Deduction related to Housing Loan Interest Section

80EEB - Deduction of up to Rs 1.5 lakh for on Auto Loan interest on the electric vehicle

Section 80G – Donation to specified Institutions,

Section 80GG – Rent Paid for the Residence,

Section 80TTA – Interest on Savings Bank Account

Section 80TTB - Interest on Savings by Senior Citizen under Bank Deposits, Post Deposits, Co-Operative Bank Deposits

C. Advantages and disadvantages of the new tax regime: Advantages:

Lower rate of tax: Under the new tax regime, tax rates are lower compared to the regular tax regime.

Less complexity in compliance: Under the new tax regime, many tax deduction/allowances/exemptions are not allowed and therefore, the requirement of maintaining the documents and filling the return of income would be lesser and simple.

More liquidity of funds and flexibility in making investments: As discussed above, various investments based deduction are not allowed under new tax regime, the taxpayer will have more liquidity of funds at his/her disposal. The taxpayer has the flexibility to invest this fund at his/her choice instead of making investments only in specified instruments for taking deduction under regular tax regime.

Disadvantages:

Restriction on deduction/allowances and exemptions: Under new tax regime, various deductions, allowances and exemptions which are available under regular tax regime, are not allowed and to that extent, the taxpayer taxable income will be more under the new tax regime as compared to the regular tax regime.

D. Which to opt- Old Or New tax regime for the F.Y.2020-21?

It is not feasible to perfect answer to this question. It depends on each taxpayer's financial needs and situation. Apparently, the new tax regime may look attractive as it has reduced rates of tax but due to non- allow the ability of various deduction /exemptions, it becomes imperative to do comparison of both the tax regimes before opting for either of one.

In doing so, the taxpayer should consider all the exemptions/deductions and allowances that are claimed/availed in the past years. For example:

If the taxpayer is paying the premium on term plan, the deduction for it is available under regular tax regime and not in the new tax regime.

If the taxpayer is staying on rented house or has taken a home loan, the benefit for rent paid or for repayment of home loan, interest as well as principle.

For the salaried taxpayer, standard deduction of Rs 50,000 is allowed under regular tax regime but not allowed a new tax regime. Further, the various benefit received by the salaried taxpayer like Leave Travel Allowance, Food Bill, Phone Bills, etc will be taxable in new tax regime.

The taxpayer having business income should evaluate the implication of provision of the new tax regime very carefully since such taxpayer does not have the option to shift between regular tax regime and new tax regime alike other taxpayers who do not have business income.

Conclusion:

The new concessional tax regime is beneficial to the taxpayer who is willing to forgo various deduction/exemption and allowances, and want to have more liquid fund in hand. The regular tax regime though have high tax rates compare to the new tax regime, is still beneficial due to the availability of various options of deduction/exemptions and allowances. It is worth to note that in the budget speech, the Hon'ble Finance Minister has expressed the intention of removing all such deduction/exemption or allowance from the income tax act, in the long run, to make the tax system easy and simple. At present, the taxpayer has an option to choose a better tax regime and such an option should be exercised after due analysis and taking appropriate advice from the expert.

Slab rate of tax:

The slab rates of tax under regular tax regime and new tax regime are tabulated as under for easy reference:

Optional: The new tax the regime is optional for the taxpayer. The taxpayers can evaluate his/her tax liability under both, regular tax regime as well as new tax regime and can choose more beneficial regime for the Financial Year 2020-21 i.e the Assessment year 2021-22 or any subsequent Assessment Year.

How to exercise: The a taxpayer having no business income can exercise his option of choosing between the two tax regimes, every year, based on his entitlements of 'specified deductions'. However, for the taxpayer having a business income, the option once exercised shall be valid and shall be applicable for that Assessment Year in which the option is exercised and for all subsequent Assessment Years. In simple words, the taxpayer, having no income from business or profession, can switch between the new tax regime and regular tax regimes every year, whereas, the taxpayer, having income from business or profession, cannot switch between the new tax regime and regular tax regimes every year. Further, if the taxpayer having income from business or profession opts for the new tax regime, such taxpayers get only one chance in their lifetime to come back to the regular tax the regime and will not be eligible for opting new tax regime again unless the taxpayer's business income ceases to exist.

Download Automated Income Tax Revised Form 16 PartA&B which can prepare at a time 50 Employees Form 16 Part A&B for the Financial Year 2019-20

Section 10(14) – Allowance other than allowances as may be prescribed for this purpose

Section 10(17) – Allowance to MP's / MLA's Section 16 – Standard deduction (Rs. 50,000), deduction of entertainment allowance for government employees (5000) and Professional Tax (Rs. 2500)

Deduction under Chapter VI-A:

Section 80C –