According to a report released in February 2020, only around 1.46 crore Indians were liable to pay tax on income for the previous financial year, out of a total population of more than 130 crore. In the 2019 Budget, individuals with annual earnings of Rs.5 lakh or less were exempted from bearing taxes on their income. However, the new income tax slab proposed in the 2020 Budget ropes in more individuals under the country’s taxpayer community.
As an earning member in India, you must be aware of the various income tax rate slabs in effect, and their impact. Doing so should help you determine your tax liability at the end of a financial year.
Tax slabs under the new tax regime
The new tax regime divides the income tax rate slabs into seven categories based on the amount of income and percentage to be borne as yearly taxes.
- Individuals earning up to Rs.2.5 lakh per annum – If you fall under this group, you do not need to file for tax returns. Thus, such individuals do not accrue any tax burden.
- Individuals earning between Rs.2.5 lakh and Rs.5 lakh – If your income falls under this bracket, you would need to pay a tax of 5% on your total earnings within this range. Nevertheless, such individuals can claim a deduction of up to Rs.12,500 a year under Section 87A of the I-T Act.
- Individuals earning between Rs.5 lakh and Rs.7.5 lakh – As per the new income tax slabs, individuals falling in this classification will need to file taxes worth 10% of their yearly earnings for the concerned income range plus 5% of the previous range.
- Individuals with income between Rs.7.5 lakh and Rs.10 lakh – A 15% tax rate applies to those with earnings in this range each year.
- Individuals with income between Rs.10 lakh and Rs.12.5 lakh – Under this tax slab, you would need to pay 20% of your earnings as taxes for the said range plus segregated taxes for the previous slabs.
- Individuals with income between Rs.12.5 lakh and Rs.15 lakh – A rate of 25% applies to individuals with yearly earnings in this range.
- Individuals with income higher than Rs.15 lakh – If you earn more than Rs.15 lakh in a year, a tax rate of 30% applies to you.
Taxpayers would, however, not be eligible for tax deductions under the new regime. Thus, to avail deductions, such as the ones available on home loans, they need to stick to the old tax regime. Consequently, an individual should also know about the tax savings and other advantages offered by home loans today.
Now, take a look at some of the benefits and limitations of the new tax regime to make an informed decision regarding its suitability.
Advantages of the new tax regime
- Individuals with low income would pay tax at reduced rates as the new income tax slab segregates and applies rates with smaller income ranges.
- It aims to simplify the income tax return filing.
- It adds flexibility by allowing individuals to switch to and from the old regime.
Limitations of the new tax regime
- It excludes as a remarkable 70 deductions available in the old regime irrespective of one’s concerned income tax slab.
- Existing tax saving investment schemes will not offer any benefit.
- Business owners will not be able to switch from one tax regime to another.
- The tax filing procedure, when switching from one regime to another, can be affected.
A major disadvantage of the new regime is that it will limit any tax-saving opportunities for homebuyers when purchasing such property via home loans. However, as it is an optional system, one can choose to pay tax under the old regime and avail home loan benefits like –
- Annual tax deductions worth up to Rs.1.5 lakh on the principal amount repaid.
- Tax benefits on interest payment of a home loan; up to Rs.2 lakh for regular housing loans and up to Rs.1.5 lakh for affordable housing loans.
- Home loan tax benefits for an under-construction property typically differ from benefits for a ready-to-move property. A deduction of up to Rs.30,000 on interest paid if an under-construction property purchased remains incomplete after 5 years of availing credit.
When availing housing finance, one should also look for a reliable HFC to experience hassle-free processing. Such a company may provide pre-approved offers to simplify and fasten the loan availing process significantly. These offers are available on a range of credit options, including loans against property, home loans, etc. You can check your pre-approved offer by submitting details, such as full name and phone number.
As for the new tax regime, consider your overall tax liabilities and decide whether it benefits your income or if you should stick to the older regime. Regardless, ensure you inquire about the various income tax slabs in India to make an informed decision.
