How to Save TAX during FY 2020-2021 ----- CA Dilip Jhajaria

Hello Kolkata Financial Desk

I am bringing forth some tips, some awareness, some knowledge on financial terms, financial rules which will help you understand these better in simple words.

   Herein I will discuss about the new Income Tax rule that has come into effect with the Financial year 2020-21 w.e.f 1/4/20.

The new income tax regime came into effect from April 1, 2020. This gives an individual taxpayer the option to either continue with the existing tax regime (with tax-exemptions and deductions) or opt for new tax regime (without 70 tax-exemptions and deductions).

  To choose between the two income tax structures, it is important that you know how much your tax liability comes down to, in both regimes.

   Under the new tax regime, an individual is eligible for only one deduction under section 80CCD . This section allows deduction on the employer's contribution to the NPS account for maximum of 10 per cent of the employee's salary or uptp maximum of 50000/ in case of others individual. Other commonly availed deductions such as those under sections 80C, 80D etc, and tax exemptions such as HRA, LTA etc. are not available in the new tax structure.

    The calculation of income tax that you are liable to pay under the new tax regime can be explained with an example. I am taking an example of salaried individual.

    Suppose your total income in FY 2020-21 is Rs 16 lakh. Further, during the year, your employer has contributed Rs 60,000 to your NPS account, which is eligible for deduction under section 80CCD (2). Therefore, your net taxable income will be Rs 15, 40,000 (Rs 16 lakh minus Rs 60,000).

     The income tax liability in the new tax regime will be calculated on Rs 15.40 lakh as under.

 (1) There will be no tax on the first Rs 2.5 lakh as it is basic exemption. The income which is still chargeable to tax now left will be Rs 12.90 lakh (Rs 15.40 lakh minus Rs 2.5 lakh).

(2) The next Rs 2.5 lakh (Rs 2.5 lakh to Rs. 5.00 lakh) will be taxed at 5 per cent as per new rates. The tax amount here will be Rs 12,500.The income left chargeable to tax will be Rs 10,40,000.

 (3) The next slab of 5.00 lac to 7.5 lacs will be taxed @10% , ie comes to 25000/-  at this point, the total tax liability comes to Rs 37,500 (0+12,500 + 25,000) and  the income which is still chargeable to tax is Rs 7,90,000.

 (4) Next slab from Rs.7.50 lact to Rs10.00lacs  will be taxed @ 15 %. and the tax liability is Rs 37,500. And the income left for taxation is Rs 5,40,000.

 (5) From point 5, the next Rs 2.5 lakh i,e Rs. 10.00 lacs – Rs12.50 lacs will be taxed at 20%  and the tax liability comes out to be Rs 50,000.The income left for chargeable for tax is Rs 2,90,000. And we have reached upto a slab of 12.50 lacs.

 (6) The next slab of Rs.12.50 lacs to Rs. 15.00 lacs will be taxed at 25%. The tax liability will be Rs 62,500. Only Rs 40,000 is left which is still to be taxed.

 (7) for this 40000/- the tax rate will be 30% the heighest in this new regime and the tax liability will be Rs 12,000.

    So The total tax liability in the new tax regime comes out  to be Rs 1,99,500 ( 0+12,500+25,000+37,500+ 50,000+62,500+12,000). Health and education cess will be added to this at the rate of 4 per cent. The cess amount is Rs7,980 and hence the total tax liability will be Rs. 207480/- .

Now we require to compare this tax liability to the tax liability comes in the existing tax regime. Under the existing tax regime we can claim deduction under various sections including 80 cc and for various purposes ranging from insurance, mediclaim, EMI of home loan, children tution fee , saving in ppf etc. So for a norlam situation savings and exemption can be claimd easily upto Rs. 310000/- and after consideraing such exemptions the tax  comes also to 207480/-.

Hence the crux is that upto an income of 16 lacs and claiming deductions of 310000/- there is no need to change. Older system is beneficial if u claim more exemptions and if low income than 16 lacs. But you have to judge after consulting your tax advisor and depends on case to case.

-CA Dilip Jhajaria

  FCA, FCS, GC (B&F- Sydney) 

  Chartered Accountant

  Investment Advisor by Profession and Philantropist by heart 

 Entrepreneur and Social Leader  

 President- Lions Club of Calcutta ('17-'18)  

 Chairman- Lion Bimal Poddar Eye Hospital 

 Member- Merchant Chamber Of Commerce

 Member of Professional Organisation DTPA, ACAE   

Winner of Bharat Gaurav Award, Best President Award from Lions Club and many more....