Calculating Income Tax Slab for FY 2020-21: Your Comprehensive Guide

‘Today, it takes more brains and effort to make out the income tax than it takes to make out income.’

Here’s an attempt to simplify the computation of tax and its various aspects. Income tax is the most influential tax and one which has a significant impact on pockets of Indian citizens. This oldest imposed direct tax has an equitable approach for both self-employed and salaried class employee, but a progressive approach in terms of income.

How to Calculate Income Tax?

In the pre-budget season, the question which hits every taxpayer’s mind is how to minimize its tax liability. But for this, it is significant to know how to calculate income tax, which is computed on gross total income.

Gross total income is the sum of heads of income which are majorly the broad sources of income i.e.

• Income under the head salary
• Income under the head business/profession
• Income under the head house property (includes rental income)
• Income under the head capital gains (gain on sale of capital asset in the long and short term)
• Income under the head other sources (includes interest income, gambling and lottery gains, etc.)

Two major factors affect the computation of tax liability of an individual – the residential status of an assessee and the age of a resident citizen.

Residential Status

There are various benefits available to a resident while computing tax liability for instance, rebate under section 87A is allowed only to resident individuals and computation of tax liability at concessional slab rates is allowed for resident senior citizens and very senior citizens. However, the entire income of a resident individual is taxable, i.e. income accruing and arising both within and outside India is taxable. Residential status of a person depends upon his stay in India i.e. a person is considered as non-resident if

• He stays in India for less than 182 days in a financial year, or
• He stays in India for less than 60 days or less than 364 days in India in the last 4 years proceeding the previous year.

A person who is not a non-resident is considered as a resident.

But residential status is for the individual but companies are distinguished as domestic and foreign companies depending upon their registered office and place of the general meeting as per section 2(22A).

Senior Citizens

Another factor which affects computation of tax liability of an individual is the age which categorizes resident citizens into 3 categories i.e. individual, senior citizen (assessed who has attained age of 60 in the previous year but is below 80 years) or (person born on or after 1.4.1958) and very senior citizen (, who has attained age of 80 in the previous year) or (person born on or after 1.4.1938 but before 1.4.1958)

Tax Slabs

In India, individuals are taxed on slab rates based on their age and HUF is also taxed on slab rate based on the age of the Karta. Slabs are decided annually in the union budget.

Individual		Senior Citizen		Very Senior Citizen
Slabs	Rate	Slab	Rate	Slab	Rate
Up to ₹  2.5 lakhs	Nil	Up to ₹ 3 lakhs	Nil	Up to ₹ 5 lakhs	Nil
Next  ₹ 2.5 lakhs	5%	Next ₹ 2 lakhs	5%
Next  ₹lakhs	20%	Next ₹5 lakhs	20%	Next ₹ 5 lakhs	20%
Balance income	30%	Balance income	30%	Balance income	30%

Only regular income is taxable at slab rate which includes income under head salary, business/profession, house property, short term capital gains under section 112 and other sources income except for casual income which includes gambling, lottery etc. which is taxable at the rate of 30%. Deductions under section 80 C to 80U are also deducted from regular income.

Capital gains are not taxed at slab rates instead long term capital gain under section 112 is taxed at 20% and short term capital gains under section 111A is taxed at 15% whereas long term capital gains under section 10(38) are exempt from income tax.

Surcharge

The surcharge, as the name suggests it is an additional charge or payment, thus surcharge is paid on the tax liability computed. There is a provision of marginal relief also available. The rates of surcharge of various assesse are:

Applicant	Rate Applicable
Individual   (applicable for: whose total income exceeds ₹100 lakhs)	15%
Partnership firm   (applicable for: whose total income exceeds ₹100 lakhs)	12%
Hindu undivided firm (HUF)	15%
Domestic company   (applicable for: whose total income exceeds ₹ 1 crores to ₹10 crores )	7%
Domestic company   ( applicable for: whose total income exceeds ₹10 crores)	12%
Foreign company   ( applicable for: total income exceeds ₹crores to ₹ crores )	2%
Foreign company   ( applicable for: total income exceeds ₹10 crores)	5%

Computation of Net Total Income

Gross total income ——-

Less: deductions u/s 80C to 80U (——-)

Net total income ——–

Computation Of Tax Liability

Tax liability ———-

(As per slabs for individual and HUF; domestic company at 30%;

The foreign company at 40%)

Add: surcharge ———-

Net total income after surcharge ———-

Less: Rebate (only if total income <=₹5; but maximum ₹5000)

Primary education cess @2% ———-

Add: Secondary education cess @1% ———-

Total tax liability ———-

Explanation

For instance,

• An individual aged below age 60 in AY 2020-21 and has net total income ₹27 lakhs, then first  ₹2.5 lakhs will be exempt next ₹2.5 lakhs is taxable at 10%, next ₹5 lakhs at 20% and remaining ₹17 lakhs at 30%

Tax liability at slab rate

First ₹2.5 lakhs –

Next ₹2.5lakhs @10% ₹25,000

Next ₹5 lakhs @ 20% ₹1,00,000

Balance ₹17 lakhs @ 30% ₹5,10,000

Total tax before cess ₹6,35,000

Add: cess @3% ₹19,050

Total tax liability ₹6,54,050

• An individual aged above age 80 in AY 2021-22 and has net total income₹ 27 lakhs,

Tax liability at slab rate

First ₹5 lakhs –

Next ₹5 lakhs @ 20% ₹1,00,000

Next ₹ 17 lakhs @ 30% ₹5,10,000

Total tax before cess ₹6,10,000

Add: cess@ 3% ₹18,300

Total tax liability ₹6,28,300

Computation of Effective Tax Rates

For all assesse with net total income more than ₹ 1crores

Applicants	Tax Rate	Surcharge   (in %)	Education cess   (primary education cess+ secondary education cess)(in %)	The effective rate of tax   ( in %)
Partnership firm	30	12	3	34.608
Domestic company	30	7	3	33.063
Foreign company	40	2	3	42.024

 

For assesse with net total income more than ₹ 10 crores

Applicants	The tax rate for normal income   (in %)	Surcharge   (in %)	Education cess   (primary education cess+ secondary education cess)(in %)	The effective rate of tax   ( in %)
Partnership firm	30	12	3	34.608
Domestic company	30	12	3	34.608
Foreign company	40	5	3	43.26

 

 

FAQs on Income Tax FY 2020-21

1) How is income tax calculated?

Income tax is calculated on the basis of  tax slab. Your taxable income is worked out after making relevant deductions, other taxes that you may have already paid (Advance Tax) and tax deducted at source (TDS), the resultant taxable income will be taxed at the slab rate that is applicable.

Male/Female
Income	Tax Rate
Upto Rs. 2,50,000	Nil.
Rs. 2,50,001 to Rs. 5,00,000	5%
Rs. 5,00,001 to Rs. 10,00,000	Rs. 12,500 + 20% of Income exceeding Rs. 500,000.
Above Rs. 10,00,000	Rs. 1,12,500 + 30% of Income exceeding of Rs 10,00,000.
Senior citizen
Income	Tax Rate
Upto Rs.3,00,000	Nil.
Rs. 3,00,001 to Rs. 5,00,000	5%
Rs. 5,00,001 to Rs. 10,00,000	Rs.10,000 + 20% of Income exceeding Rs. 500,000.
Above Rs. 10,00,000	Rs. 1,10,000 + 30% of Income exceeding of Rs 10,00,000.
Very senior citizen
Income	Tax Rate
Upto Rs. 5,00,000	Nil.
Rs. 5,00,001 to Rs. 10,00,000	20%
Above Rs. 10,00,000	Rs. 1,00,000 + 30% of Income exceeding of Rs 10,00,000.

The Union Budget 2019-20 has proposed full tax rebate for income up to Rs. 5 lakhs u/s 87A.

2) How much tax should I pay on my salary?

The income tax on your salary will be calculated depending on the tax slab. The taxable income will be worked out after making applicable deductions if any. If you invest in life insurance, you can claim a deduction from taxable income of life insurance premium paid up to Rs. 1.5 lakhs. Section 80C also offers deduction from taxable income for investments in PPF (Public Provident Fund), NSC (National Savings Certificate) and other instruments along with home loan principal repayment. Additionally, if you invest in health insurance, you can get deductions up to Rs. 25,000 under Section 80D for yourself and your family and up to Rs. 25,000 (Rs. 50,000 if the age of insured is 60 or above) for your parents. You can also get the deduction of home loan interest up to Rs. 2 lakh under Section 24. These are ways you can consider to lower your overall tax outgo.

3) Which income is not taxable in India?

Incomes mentioned under section 10 of The Income Tax act 1961 are not taxable in India

4) What is the maximum non-taxable income limit?

Income up to Rs. 2.5 lakh does not attract any taxes. Further, u/s 87A person gets full tax rebate if the income of a person is less than Rs. 5 Lacs.

5) Does everyone have to file their income tax returns?

If your income is below the taxable threshold of Rs. 2.5 lakhs currently, it is not compulsory to file your income tax return. However, if you have a PAN (Permanent Account Number) card and an income that falls below the taxable threshold, experts advise the filing of your ITR with a NIL return. This is to show the IT department that you did not have any income that was taxable for a specific year and hence, did not pay your taxes for the same. This will help you immensely in the future. Also, if you are an Indian resident with investments/assets outside India, you have to file returns even if your overall income falls below the taxable threshold. You will have to file your tax returns if you are eligible to claim refunds on any taxes that you may have paid in advance.

Lastly, whenever the question hits your mind- how to calculate the income tax as per new income tax slabs, you can do it using the income tax calculator. Firstly, determine how much taxable income you have and then find suitable investments for tax deductions. Savings and investment plans such as ULIPs help you save on taxes, in addition to insurance benefits.