Most of the people don’t know that they are paying tax on everything. Here we are going see about income tax slab for financial year (FY) 2020-21 under new tax regime as well as under old tax structure, income tax deductions for assessment year (AY) 2021-22, 80C deduction for FY 2020-2021, income tax exemptions, limitations of tax planning in India, income tax rebate, tax planning strategies and related limitations in India for 2020-2021.
Even those who are living under poverty line and earning just a few hundred rupees in a whole month are also paying tax. How? By purchasing those products which are sold with tax added price. A match box, a candle, a bread packet, an egg, and what not. We have to pay taxes on everything. When we are talking about personal finance, tax planning means income tax planning. As a taxpayer you should know various different types of tax planning strategies for individuals in India.
Introduction to Tax Planning Strategies
Analysis of financial statement and building a strategy to minimize the tax payout and maximize the available options under tax exemptions, rebates, deductions based on the Income Tax Act of India. In other words, it is basics of financial planning to save income tax to the maximum with regulations and laws of a country.
The Indian Income Tax Act allows some deductions at the time of income tax return filing which help people to save on their income tax. The advantage of these allowed deductions is possible only if an individual has done tax planning in synchronization to these allowed deductions.
2017, this is the first time in history where union budget and railway budget are conducted together on the same day under Narendra Modi government in India.
Year 2018, Arun Jaitley (Minister of Corporate Affairs in India) has presented Income Tax budget on 1st February 2018 under the prime minister Narendra Modi.
In year 2019, Piyush Goyal (Minister of Finance & Corporate Affairs in India) has presented Interim budget on 1st February 2019 under the prime minister Narendra Modi.
In 2020, Nirmala Sitharaman (Finance Minister of India) has presented the Union Budget 2020 on 1st February 2020. This year, individual gets two options to file your income tax i.e. under new income tax regime or you can file under old income tax structure and tax slab. You can decided to file income tax under which ever option benefits to you.
Income Tax Slab for F.Y. 2021-22 in India Under New Income Tax Regime
Today we will learn and understand about income tax exemption limit, income tax slab for AY 2021-22 (FY 2020-21), income tax rebate for AY 2021-22 (FY 2020-21) in India, limitations of tax planning, tax planning strategies, and related limitations for individuals in India and for salaried employees for current financial year 2020-2021.
|Income||Tax Rate under New Tax Regime|
|Up to ₹5,00,000 Income||Nil (No Income Tax)|
|From ₹5,00,001 to ₹7,50,000||10%|
|From ₹7,50,001 to ₹10,00,000||15%|
|From ₹10,00,001 to ₹12,50,000||20%|
|From ₹12,50,001 to ₹15,00,000||25%|
|From ₹15,00,001 and Above||30%|
Note: Please make a note that under new tax structure, you will not be able to claim any deductions under any section as like old income tax regime.
Income Tax Slab for F.Y. 2021-22 in India Under Old Income Tax Structure
Income tax for assessment year (AY) 2021-22 was presented in February 2018. Income tax is applicable according to the income tax slab rate, which is revised in every budget of India. Highest tax slab for assessment year 2021-22 in India is 30%. Taxation in India can be calculated based on your below income tax slab for the financial year (FY) 2020-2021. India Income tax slab for salaried employees, general tax payers for men and women below 60 years of age is listed here:
(Less than 60 Years)
(60 to 80 Years)
|Super Senior Citizens|
(80 Years and Above)
|Up to ₹2,50,000||NIL||NIL||NIL|
|From ₹2,50,001 to ₹5,00,000||5%||5%||5%|
|From ₹5,00,001 to ₹10,00,000||20%||20%||20%|
|From ₹10,00,001 and Above||30%||30%||30%|
Apart from the above tax rate there are additional taxes with respect to health, education and high net-worth individuals. Kindly make a note of below points to calculate exact amount of your income tax.
- Additional to income tax slab you will pay health and education cess 4% on income tax.
- 10% Surcharge on income exceed from ₹50 lakhs and less than ₹1 crore.
- 15% surcharge on income above ₹1 crore.
- Tax is exempted on Taxable Annual Income up to ₹5 Lakh.
- Standard deduction up to ₹50,000 is applicable for pensioners and salaried class individuals.
Tax Planning Strategies for Individuals in India for Current Financial Year
Indian Income Tax Act has several sections under which every individual can enjoy the benefit of deductions. Here are the list of tax planning limitations / exemptions / rebates or deductions under income tax as a part of tax planning strategies for individuals which you can avail in financial year 2020-21. Below list is also applicable for income tax deductions for salaried employees.
Taxpayer Deduction under Section 80C:
Theses sections allow tax savings on several small savings. The maximum limit of saving under these acts is ₹1,50,000/-. This limit can change in future. The previous limit was ₹1,50,000/-. Mainly, it is these sections under which most of the people look to save taxes. These sections allow savings on tax as well as some expenditure which people normally incur. This is one of the common tactic followed under tax planning strategies in India. The small savings / investments which fall under these sections which help a rebate in tax are:
- Provident Fund (PF) & Voluntary Provident Fund (VPF).
- Public Provident Fund (PPF).
- Life Insurance Premiums.
- Equity Linked Savings Scheme (ELSS).
- Stamp Duty and Registration Charges for a home.
- Sukanya Samriddhi Account.
- National Savings Certificate (NSC) (VIII Issue).
- Infrastructure Bonds.
- Pension Funds – Section 80CCC.
- 5-Yr bank fixed deposits (FDs).
- Senior Citizen Savings Scheme 2004 (SCSS).
- 5-Yr post office time deposit (POTD) scheme.
- NABARD rural bonds.
- Unit linked Insurance Plan.
- Sukanya Samriddhi Account.
- Home Loan Principle.
- Registration & Stamp duty paid on purchase of home.
- Self, Spouse and Children’s education expense.
- Tuition fees up to two children.
It is very important of everyone to know all the different savings types and pick the right one for self. Saving of 1,50,000 rupees a year is a big amount for any common person.
Deductions under Income Tax for HRA under Section 10 (13A)
HRA is commonly termed for House Rent Allowance. Part of the HRA can be claimed for deduction from income tax if you are staying in rented house. Also note that those who are staying with their families can also apply for benefits by declaring rent towards parents. Exemption under HRA amount is calculated on minimum from below:
- a) (Rent paid per annum) – (10% of basic salary + dearness allowance).
- b) Actual House Rent Allowance (HRA) received.
- c) 40% (incase of non-metro cities) or 50% (for metro cities) of basic salary + dearness allowance.
Exemption Under Section 80D, Section 80DD, and Section 80DDB
These sections allow individuals to save on taxes for insuring his own health or the health of his dependents (child and spouse). These sections covers medical insurance premium, medical treatment of handicapped dependents, and treatment of specific diseases such as neurological diseases, malignant cancers, full-blown acquired immune-deficiency syndrome (AIDS), chronic renal failure, and hematological disorders. Deduction of ₹25,000 for age below 60 years and ₹30,000 above 60 years of age can be claimed for self, spouse and children.
Income Tax Rebate for Home Loan
It is the saving on home loan principal repayment and home loan interest payment. This is highly advisable to avail this benefit of deduction allowed for repayment of home loan which results in big tax saving. Home loan principle can be claimed under section 80C and Home loan interest can be claimed under section 24B.
As per current tax laws, borrowers / owners of self-occupied properties and let-out properties can claim for deduction upto ₹2,00,000 per year after adjusting rental income. Earlier there was no upper cap on let-out properties but from this year government has brought down tax benefits for let-out owners.
Effective Tax Planning Strategy on Education Loan
It is tax saving on education loan (under section 80E) which people need to take, generally for higher education. Here, point to note is that the deduction is on repayment of interest and not the principle amount. In the case of home loan repayment, the deduction is allowed on the repayment of principal amount as well as on interest.
Taxpayer Related Limitations under Section 80CCG (RGESS)
This section is for only those who have an annual taxable income of less than ₹12,00,000 and invest in shares of specified companies and specified mutual funds types. The name of this deduction is Rajiv Gandhi Equity Saving Scheme. You can consider this as one of the important taxpayers planning strategies if your income is below then mentioned limit.
Tax Planning Strategies in India – Long Term Capital Gains
This is one of the important type and effective type of tax planning strategies which is followed widely across India. If an individual makes some profit on the sale of any long term capital asset, then he can claim a tax deduction. Here, long-term means 3 or more years. For example: If a person sells a property after 3 years, then he can claim the tax deduction on the profit gains. It is highly advisable and recommended to take the advantage of exemption.
Long-Term Capital Gains from Sale of Equity Shares
There is a provision of income tax deduction on long-term gains from the sale of equity shares. Provided these shares were held for more than 1 year. From 2018, LTCG is taxed at 10% for profits about ₹1 lakh.
Donations Exemption under section 80G
There are many NGO’s where you can donate and avail to take benefit of donation under your tax exemptions. Contribution towards National Relief Fund is a typical example of donation where an individual can claim a tax rebate.
This are some of the common and important tactics followed as a tax planning strategies in India for individuals. Effective tax planning strategy will help you lot in your savings and building your wealth. If you haven’t focused on it yet, you should think-of now. So, as an individual tax planning is another big thing to deal with it. Learning and keep on improving is the only way to reach the goal of good personal finance.
Apart from the above, there are other various different types of strategies to save taxes as well. Hope this information related to income tax slab for FY 2020-21, tax planning strategies and related limitations in India, income tax rebate, income tax deductions for salaried employees, limitations of tax planning would have assisted you a lot. Do leave your feedback and comments!
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- Chapter 2: Financial Assessment of a Company or an Individual
- Chapter 3: Primary Objectives and Goals of Financial Management
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- Currently Reading: Income Tax Slab, Deductions, Tax Planning Strategies for Individuals
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