There was no change in the income tax slab in the general budget of 2021, but in the tax slab of 2020, two options were given for the taxpayer to pay tax. In the old tax slab, there is a tax of 5 percent on 2.5 lakh to 5 lakh, but due to the many exemptions on it, the tax on income up to 5 lakh is almost nil. At the same time, there is no tax on income up to 5 lakh in the new tax slab, but many exemptions have been abolished.
There was no change in the income tax slab in the Union Budget 2021. In the budget of 2020, two options were given for filing taxes. Therefore, even now, two tax options are in front of the taxpayers. It has two facilities for filing income tax. Taxpayers can choose any one of the two tax slabs. These options are effective from the financial year 2020-21. Out of these two options, one option is the old/existing tax slab and the other option is the new tax slab, which was introduced in Budget 2020. Let us know which tax slab is beneficial for whom out of the new or old tax slab.
Since there was no change in income tax slabs in Budget 2021, taxpayers under Budget 2020 can choose either of these two options while filing their income tax returns. Out of these two options, one option is the old/existing tax slab and the other option is the new tax slab, which was introduced in Budget 2020.
First let us understand what is the earlier tax slab, the option of which is still available today. According to the tax slab introduced in the budget before 2020, there is no tax on income up to Rs 2.5 lakh. Income from Rs 2.5 lakh to Rs 3 lakh is taxed at the rate of 5 percent. Also, tax exemption of Rs 12,500 is available under u/s 87A. Income ranging from Rs 3 lakh to Rs 5 lakh is also taxed at the rate of 5 percent and tax exemption of Rs 12,500 is available under u/s 87A.
Thus, in this tax slab, no tax liability is created by getting tax exemption under 87A up to income up to Rs 5 lakh. Beyond this, an income of Rs 5 to 7.5 lakh is taxed at the rate of 10 percent. Income of Rs 7.5 to 10 lakh is taxed at the rate of 15 percent. Income between Rs 10 to 12.50 lakh is taxed at the rate of 20 percent. And Income between Rs 12.5 lakh and Rs 15 lakh is taxed at the rate of 25 percent. After this, income above Rs 15 lakh is taxed at the rate of 30 percent.
In the budget of 2020, the rates in the tax slab were reduced, but in this, other tax exemptions under section 80C and other tax exemptions have been abolished. The new tax slab was divided according to age. In this, a tax slab has been made up to the age of 60 years, a slab for the age of 60 to 80 years, and a slab for super senior citizens above the age of 80 years. No tax on income up to Rs 2.5 lakh for 60 years. There is a tax of 5 percent on 2.5 lakh to 5 lakh, 20 percent on 5 to 10 lakh, and 30 percent above 10 lakh.
There is a tax exemption under 87A on an income of Rs 2.5 to 5 lakh in this tax slab. Tax-free up to 3 lakh between 60 years to 80 years. After that, there is 5 percent tax up to 5 lakhs and 20 percent tax on 10 lakhs. In this, tax exemption is also available under 87A. There is no tax on income up to Rs 5 lakh if you are above 80 years of age. 20 percent on income of 5-10 lakhs and 30 percent on above.
Apart from the rates in the new tax slab introduced in the last budget, the big difference is that various exemptions have been abolished in it, while the old/existing tax slab is getting the benefit of various tax exemptions. That is, under the old tax, there is a tax of 5 percent on income above 2.5 lakhs, but with many exemptions, it becomes almost nil. There is no tax in the new tax slab till income up to 5 lakhs, but in this many old exemptions have been abolished.
One can get a tax exemption up to a maximum of Rs 1.5 lakh by investing in specified instruments under section 80C in both the old/existing income tax slabs. By getting this tax exemption, no tax liability will be created on income up to five lakhs in the old/existing income tax slab.
Taxpayers opting for concessional rates in the new tax regime will have to forego certain exemptions and deductions available in the existing/old tax regime. There are 70 deductions and exemptions that are not allowed in the new tax slab.
In the new tax system, the highest tax is levied on the income of 15 lakhs annually and above. This arrangement is beneficial for those who claim less exemption and deduction. People who fall in higher tax slabs and who have made necessary investments to save tax, will not benefit much from this arrangement. Those who want to adopt the new system of rates will have to forgo all the exemptions like standard deduction, 80C, 80D, housing loan, NPS. If someone adopts the new system then he has to choose the option. If you do not do this, then its tax slab will continue to be assessed from the old system.
For those who are less than 30, the new system will be fine, but it will be better if the older people stay in the old system. The new system can be better for people earning less than 10 lakhs. For those earning more than this, it would be better to remain in the old system. If the home loan is running, then it would be appropriate to the repayment of the home loan. In this case, the benefit of deduction will be available. Such people should remain on the old system. For those who pay the school fees of the children, it would be better for them to remain in the old system as one can avail the tax exemption on the fees.
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