Income Tax slabs for F.Y 19-20, A.Y 20-21

0
429

What is the income tax slab?

The Income tax slab FY 19-20 is a set of predetermined rates based on which a taxpayer’s income is assessed. Income Tax slab Every year amendments are made to the Income tax act by proposing a finance bill which directly decides the threshold limits for various tax rates. This year the honorable Finance Minsiter of India, Piyush Goyal has presented the interim budget on February 01 in Lok Sabha on which he stated various amendments in Income tax Act 1961 through Finance Bill 2019.

Income tax slab rates are dependent on the following factors:

  1. Assessment year
  2. Residential status of Assessee
  3. Rate of tax
  4. Income of Assessee
  5. Income tax charge
  6. Threshold limit
  7. Gross income

Applicability of Income tax slab

The Income tax slab is applicable to:

  1. Any resident income with a source of income
  2. A Hindu Undivided Family (HUF)
  3. A company
  4. A firm
  5. An Association of person (AOP) or a Body of Individuals (BOI)
  6. Any local authority

Income tax slabs for individual taxpayers, HUFs, AOP and BOI (Less than 60 years old) for the AY 20-21

Income tax
slab
Rate of tax Health and education cess
Up to Rs 250000 Nil Nil
Rs 250000 to Rs 500000 5% of total income exceeding Rs 250000 4%
Rs 500000 to Rs 1000000 Rs 12500+20% of total income exceeding Rs 500000 4%
Above Rs 1000000 Rs 112500+30% of total income exceeding Rs 1000000 4%

Income tax slabs for Senior Citizens (>=60 years but <80 years) for the AY 20-21

Income tax
slab
Rate of tax Health and education cess
Up to Rs 300000 Nil Nil
Rs 300000 to Rs 500000 5% of total income exceeding Rs 300000 4%
Rs 500000 to Rs 1000000 Rs 10000+20% of total income exceeding 500000 4%
Above Rs 1000000 Rs 110000+30% of total income exceeding Rs 1000000 4%

Income tax slabs for very senior citizens(>=80 years) for the AY 20-21

Income tax
slab
Rate of tax Health and education cess
Up to Rs 500000 Nil Nil
Rs 500000 to Rs 1000000 20% of total income exceeding Rs 500000 4%
Above Rs 1000000 Rs 100000+30% of total income exceeding Rs 1000000 4%

There has not been any change in the slab ratesfor the computation of tax of individuals and HUFs for the AY 2020-21.

Income tax slab for domestic companies

Turnover particulars Tax rate for AY 20-21 Tax rate for AY 19-20
Gross turnover of up to Rs 250 crore in the financial year 25% 25%
Gross turnover exceeding Rs 250 crore in the financial year 30% 30%

Also in addition surcharge and cess would be leviable as follows:

Particulars AY 20-21 AY 19-20
Cess 4% 3%
If taxable income is greater than Rs 1 cr but less than Rs 10 cr 7% 7%
If taxable income is greater than Rs 10 cr 12% 12%

Income tax rate applicable to Local Authority for AY 20-21

For the Assessment year 20-21 the local authority will be taxed at 30 percent.

In case income is more than Rs 1 crore, a surcharge of 12% is applicable on the income tax amount.

Also Health and education cess of 4% is applicable on the amount of tax computed, inclusive of surcharge.

Income tax rate applicable to Partnership firm for AY 20-21

For the Assessment year 20-21 the Partnership firm including Limited Liability Partnership (LLP) will be taxed at 30 per cent.

In case income is more than Rs 1 crore, a surcharge of 12% is applicable on the income tax amount.

Health and education cess of 4% is applicable on the amount of tax computed, inclusive of surcharge.

The income tax rate applicable to Co-operative society for AY 20-21

Taxable income Tax rate
Up to Rs 10000 10%
Rs 10000 to Rs 20000 20%
Above Rs 20000 30%

Income tax rate applicable to Foreign Entities for the AY 20-21

Nature of income Tax rate
If a foreign company operating in India receives income as royalty from the government of India 50%
If a foreign company operating in India receives income as a fees for technical services provided 50%
Any other income 40%

Change in Cess rate

The Interim Budget has replaced the “Education cess” of 1 percent and “Secondary and Higher education cess” of 2 percent by “Health and Education cess” at the rate of 4 percent.

Concept of surcharge

In India, the concept of surcharge for the taxpayers on the basis of categorization was introduced by Finance Act 2013. Surcharge is levied on the income tax and not on the income itself. In other words, it is a tax on tax. The surcharge rate had been increased in the Finance Act 2017 and there has been no change in the surcharge rate since then.

Surcharge categories

Individuals: If the income during the relevant Assessment year is Rs 1 crore or more, the surcharge is leviable at the rate of 15 percent. However if the taxable income is more than Rs 50 lakhs and less than Rs 1 crore, surcharge of 10 percent would be applicable.

Firms, Co-operative societies and local authorities: If the income during the relevant Assessment year is Rs 1 crore or more, the surcharge is leviable at the rate of 12 percent. However, no surcharge is applicable if the income is less than Rs 1 crore.

Domestic Company: If the income during the relevant Assessment year is Rs 10 crores or more, the surcharge is leviable at the rate of 12 percent. However if the taxable income is more than Rs 1 crore and less than 10 crore, surcharge of 7 percent would be applicable. No surcharge is applicable for income less than Rs 1 crore.

Foreign company: If the income during the relevant Assessment year is Rs 10 crores or more, the surcharge is leviable at the rate of 5 percent. However if the taxable income is more than Rs 1 crore and less than Rs 10 crore, surcharge of 2 percent would be applicable. No surcharge is applicable for income less than Rs 1 crore.

The rates of surcharge applicable on foreign companies and domestic companies are less than the surcharge applicable to individuals as the companies are already taxed at a higher rate than the individuals as per the income tax slabs.

How to compute surcharge on Income tax?

First step is to compute the income as per the income tax slabs. The calculation of surcharge has been illustrated by the following example. (Assuming taxpayers are individuals).

Particulars Taxpayer A Taxpayer B
Total taxable income Rs 4800000 Rs 5100000
Total tax payable as per income tax slabs Rs 1252500 Rs 1342500
Applicability of surcharge No Yes
Surcharge @10% Rs 134250
Total tax payable including surcharge Rs 1252500 Rs 1476750
Health and education cess @4% Rs 50100 Rs 59070
Total tax payable after surcharge and cess Rs 1302600 Rs 1535820

Marginal relief

The concept of marginal relief can be explained with the help of another example

Particulars Amount Amount
Total taxable income 5000,000 5100,000
Total tax payable as per income tax slabs 1312,500 1342,500  
Applicability of surcharge No Yes
Surcharge @10%   134,250
Total tax payable inclusive of surcharge 1312,500 1476,750
Increase in tax liability due to increase in income   164.250

It is seen in the above example that the incremental tax charged from the taxpayer is greater than the income earned! The incremental income tax charged is Rs 164250 but the incremental income is only Rs 100000. To do away with this flaw in the tax provision, the government has introduced the concept of marginal relief. As the name itself signifies that it is a tax relief provided for the marginal income earned when the taxable income exceeds surcharge threshold of Rs 50 lakhs.

Marginal relief can be computed as below:

Increase in tax excluding cess Rs 1476750-Rs 164250=Rs 164250
Less: Income above 50 lakhs Rs 100000
Marginal relief Rs 64250

The subtraction of marginal relief is shown as below:

Particulars Income of Rs 50 lakhs Income of Rs 51 lakhs
Tax payable as per Income tax slabs Rs 1312,500  
1342,500
Applicabilty of surcharge No  
Yes
Surcharge @10%   134,250  
Less: Marginal relief   64,250
Total tax payable including surcharge Rs 1312,500  
1412,500
Health and education cess Rs 39,375   42375
Total tax payable including surcharge and cess Rs 1351,875 1454875

WHAT IS REBATE U/S 87A?

To provide relief to taxpayers, the government had introduced the concept of rebate u/s 87A of the Income tax Act 1961. The new budget has brought about a substantial change in the rebate system. To be eligible for rebate in the AY 20-21, the following conditions must be satisfied:

  1. You must be a Resident Individual
  2. Your total income less any deductions under section 80C of the Act is not more than Rs 5 lakhs.
  3. The new rebate provided to you would be limited to Rs 12500.

Earlier for the AY 19-20, the following conditions were to be satisfied for claiming rebate:

  1. You must be a Resident Individual
  2. Your total income less any deductions under section 80C of the Act is not more than Rs 3.5 lakhs.
  3. The rebate provided to you was limited to Rs 2500 only.

The calculation of rebate can be illustrated with the help of the following example

The total income of Mr. Raja less any deductions u/s 80C of the Act in the F.Y 2019-20 is Rs Rs 340000. Assuming Mr. Raja is not a senior citizen, compute the rebate u/s 87A

The tax to be paid as per the slab rates would be

(Rs 340000-Rs 250000)*0.05= Rs 4500

The amount of Rs 4500 would be allowed as rebate as it is less than Rs 12500. Hence the tax payable by Mr. Raja for the AY 20-21 is 0. But if the tax was to be computed in accordance with the earlier provision, the tax payable before cess would have been Rs 2000 after subtracting the rebate of Rs 2500 from Rs 4500.

But supposing the total income of Mr Raja was Rs 600000

Then no rebate would be allowed as Rs 600000 is greater than amount specified in the condition i.e. Rs 500000

Then the tax to be payable before providing for cess, as per slab rates would be

(Rs 500000-Rs 250000)*0.05 + (Rs 600000-Rs 500000)*0.2=Rs 14500

Problem with the amended rebate

A big controversy is lurking regarding the provision of marginal relief. The government has been silent on the matter whether marginal relief would be provided to the residents or not.

For instance, let us assume two cases

Case 1: Income of Mr Raja is Rs 500000

Case 2: Income of Mr Raja is Rs 501000

Computation of tax in both the cases

  Tax in Case 1 Tax in Case 2
Tax computed Rs 12500 Rs12700
Rebate Rs 12500
Tax payable before cess 0 Rs 12700

It is clearly noticed that on an increase in income by Rs 1000, the taxpayer has to pay an additional tax of Rs 12700 which is more than the marginal income earned.

It is to be noted that rebate is always computed before calculation of any cess or surcharge.

Currently the Interim Budget has not suggested any solution for such problem but it is hoped that this issue will be resolved after the result of the elections for the new Indian government.

However the budget is favourable for the salaried taxpayers eradicating the need to pay any tax to the government provided the taxable income is below or equal to the limit of Rs 500000.

Conclusion

With the coming of the interim budget 2019, the proposed key changes in the income tax laws are yet to come into effect.  Individual assessee’s tax outgo will change accordingly. The budget has not suggested any changes in the In Income tax slab rates, however, it is targeted to salaried persons and pensioners through standard deductions and tax rebate.

LEAVE A REPLY

Please enter your comment!
Please enter your name here