Tips for Saving Tax in FY 2020-21
- Invest in Equity-Linked Saving Scheme (ELSS)
- Invest in the National Pension Scheme.
- Invest in Sukanya Samriddhi Yojna.
- Know When to Opt for the New Tax Regime.
One of the best ways to save tax is nothing but contributing some amount to NPS. There is a deduction available under Section 80CCD up to Rs 50,000 for contributions to the NPS. This contribution helps you to invest in equity and debt pension funds so that you can build a retirement corpus.
INCOME SLAB AND TAX RATES FOR F.Y. 2020-21/A.Y 2021-22
| Taxable income | Tax Rate |
|---|
| Up to Rs. 2,50,000 | Nil |
| Rs. 2,50,001 to Rs. 5,00,000 | 5% |
| Rs. 5,00,001 to Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
[Budget 2020] Tax Rates Lowered But HRA, 80C, and INR 50,000 Standard Deduction Gone. In the Union Budget 2020, finance minister Nirmala Sitharaman proposed a new tax regime with lower tax rates for different income groups. Four new tax slabs have been introduced, making it a total of seven slabs.
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.
| S. No. | Income slabs | Income tax rate (%) |
|---|
| 1 | Up to Rs 2.5 lakh | Nil |
| 2 | Between Rs 2,50,001 and Rs 5 lakh | 5% |
| 3 | Between Rs 5,00,001 and Rs 7.5 lakh | 10% |
Deduction from family pension under Section 57. Any deduction under chapter VIA (like Section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, and so on.
The amounts assume the individual is receiving the standard Personal Allowance for tax-free income of £12,570 in the 2021/22 tax year (or £12,500 in the 2020/21 tax year). The Personal Allowance is reduced by £1 for every £2 earned over £100,000.
You can claim the following tax deductions in schedule DI: Deductions for tax-saving investments under section 80C, 80CCC and 80CCD. Deduction for payments such as medical insurance and expenses under section 80D, 80DD and 80DDB. Interest on housing and other eligible loans under section 80E, 80EE, 80EEA and 80EEB.
Section 80C offers deductions of up to Rs. 1.5 lakh on life insurance premiums paid in a particular year. Section 10(10D) specializes in offering tax deductions on claims, i.e. death and maturity benefit, which includes all forms of accrued bonuses against the respective life insurance policies.
Your total investment upto 1.5 lakhs will only be allowed as deduction u/s 80C. The additional contributions do not have any problem from tax point of view, except that you cannot claim deduction u/s 80C on them.
The tax benefits provided on the payment of LIC premium comes under section 80C of Income Tax Act, 1961.
Section 80C of the Income Tax Act provides a deduction of Rs 1.5 lakh from the taxable income of an individual for certain investments made during the financial year. There are various avenues to make investments and avail deduction under this act. Some are discussed below. 1. Public Provident Fund (PPF)
Let us take a look at some of such tax-saving options you may consider other than those available under Section 80C:
- Section 80CCD (1B): Additional deduction for NPS investments.
- Section 80D: Health insurance premium.
- Section 10(13A): HRA exemption by paying rent to parents.
Among the various tax-saving options, most individuals prefer to claim tax deduction under Section 80C of the Income Tax Act, 1961. Section 80C allows individuals and HUFs to claim tax deduction of up to Rs. 1,50,000 from their gross total income for certain investments and payments.
Equity Linked Savings Scheme (ELSS)There is no limit on the amount that can be invested in any of these schemes, but the tax benefit is available only for Rs 1.5 lakh. ELSS comes with a lock-in period of 3 years and it is the lowest among all the options available under section 80C.
Kindly note that the Total Deduction under section 80C, 80CCC and 80CCD(1) together cannot exceed Rs 1,50,000 for the financial year 2020-21. The additional tax deduction of Rs 50,000 u/s 80CCD (1b) is over and above this Rs 1.5 Lakh limit.
Income above Rs 15 lakh is taxed at 30 per cent. Individuals opting for taxation under new rates are not entitled to exemption/deductions including under Section 80C and 80D, LTC, housing rent allowance, the deduction for entertainment allowance, professional tax, and interest on self-occupied/vacant property.
There were no changes in income tax slabs, PPF limit, Section 80C exemption. This comes despite experts asking for increased money in the hands of the salaried class to boost consumption. The Finance Minister, however, gave some relief to senior citizens.
How to Save Tax Apart from Section 80C?
- Section 80D: Medical Insurance Premium.
- Section 80G: Charitable Donations.
- Section 80GG: Rent towards Accommodation.
- Section 80D: Health Insurance.
- Section 80E: Education Loans.
- Section 80EE: Home Loans.
- Section 80TTA: Interest on Saving Accounts.
- HUF Receipts.
2. Income Tax Rates for FY 2020-21 & FY 2021-22 for HUF, AOP, BOI, Other Artificial Juridical Person
| Net Income Range | Rate of Income Tax |
|---|
| Up to Rs. 2,50,000 | – |
| Rs. 2,50,000 to Rs. 5,00,000 | 5% |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
Income tax slab for FY 2021-22
| 1ST OPTION | 2ND OPTION |
|---|
| Old Income Tax Slab Regime | New Income Tax slab Regime |
|---|
| Rs 5,00,001 - Rs 10,00,000 | 20% | Rs 10,00,001 - Rs 12,50,000 |
| Above Rs 10,00,000 | 30% | Rs 12,50,001 - Rs 15,00,000 |
| | Above Rs 15,00,000 |
Therefore, interest accumulated on PPF balance will still remain tax-free as contribution (to PPF) during any financial year will not exceed Rs. 2.5 lakh as prescribed by the amendment in Finance Bill 2021. Moreover, contribution to each provident fund needs to be seen separately and not in aggregate.
From FY 2020-21, an individual can continue with the old or existing tax regime and avail common deductions such as section 80C, section 80D etc. of the Income-tax Act, 1961. Else, she/he can opt for the new, concessional tax regime without any commonly availed deductions and tax exemptions.
As announced in the Budget 2021, if deposits in Employees' Provident Fund (EPF) and Voluntary Provident Fund (VPF) by an employee exceed Rs 2.5 lakh in a financial year, then the interest earned on the contributions exceeding Rs 2.5 lakh will be taxable in the hands of an employee.
Rebate limit under section 87A for all the Financial years
| Financial Year | Limit on Total Taxable Income | Amount of rebate allowed u/s 87A |
|---|
| 2020-21 | Rs. 5,00,000 | Rs. 12,500 |
| 2019-20 | Rs. 5,00,000 | Rs. 12,500 |
| 2018-19 | Rs. 3,50,000 | Rs. 2,500 |
| 2017-18 | Rs. 3,50,000 | Rs. 2,500 |
Section 87A was introduced in Finance Act 2003 which was changed from time to time. Presently an individual tax payer, who is resident of India for income tax purpose, is entitled to claim tax rebate up to Rs. 12,500 against his tax liability if your income does not exceed ₹5 lakh.
Standard Deduction From Salary under section 16 (ia)Standard deduction is allowed under section 16ia of Income Tax Act. The standard deduction replaced transport allowance of Rs 19200 and medical reimbursement of Rs 15000. In the budget – 2018 our Finance Minister Jaitley introduced it.
From Financial Year 2019-20 onwards, this standard deduction has been increased to Rs. 50,000 p.a. This deduction is allowed irrespective of the actual expense incurred by the employee. The employee is also not required to submit any bills/proofs to the employer for claiming this deduction.
