Income Tax--Current Issues
Practice Update
V.K. Subramani
A COMPARATIVE STUDY OF TAX LIABILITY
The Finance Act, 2020 has inserted section 115BAC which
gives an option to the personal taxpayers to either pay in the old slab rates
of tax or the new rates prescribed in section 115BAC. In this write up, we
would do a comparative study for deciding which would be more appropriate for
persons having salary income with self-occupied property (with housing loan)
and investments eligible for deduction under Chapter VI-A.
Example: Mr. A is
employed in a company with salary income of Rs. 30 lakhs before standard
deduction for the financial year 2020-21 :--
|
|
New Scheme (in Rs.)
|
Old scheme (in Rs.)
|
|
Salary
Income
|
30,00,000
|
|
30,00,000
|
|
|
Less: Standard deduction
|
NIL
|
|
50,000
|
|
|
|
|
30,00,000
|
|
29,50,000
|
|
Self-Occupied
property
|
|
NIL
|
|
(2,00,000)
|
|
Gross Total
Income
|
|
30,00,000
|
|
27,50,000
|
|
Less: Chapter VI-A deductions
|
|
|
|
|
|
Section
80C-Maximum
|
Nil
|
|
1,50,000
|
|
|
Section
80D-employee below 60 years and for dependent parents aged above 60 years.
(Rs.25,000+Rs.50,000)
|
Nil
|
|
75,000
|
|
|
Section
80CCD(IB) - in respect of notified pension scheme
|
Nil
|
|
50,000
|
|
|
|
|
|
|
2,75,000
|
|
Total Income
|
|
30,00,000
|
|
24,75,000
|
|
Computation
of tax liability:
|
|
|
|
|
|
On first
Rs. 2,50,000
|
Nil
|
|
Nil
|
|
|
On next Rs.
2,50,000 @ 5%
|
12,500
|
|
12,500
|
|
|
On next Rs.
2,50,000 @ 10%
|
25,000
|
|
|
|
|
On next Rs.
2,50,000 @ 15%
|
37,500
|
|
|
|
|
On next Rs.
5 lakhs @ 20%
|
--
|
|
1,00,000
|
|
|
On next Rs.
14,75,000 @ 30%
|
--
|
|
4,42,500
|
|
|
On next Rs.
2,50,000 @ 20%
|
50,000
|
|
|
|
|
On next Rs.
2,50,000 @ 25%
|
62,500
|
|
|
|
|
On balance
Rs. 15,00,000 @ 30%
|
4,50,000
|
|
|
|
|
Tax Liability before HEC
|
|
6,37,500
|
|
5,55,000
|
In the above example, it is beneficial
for the taxpayer to opt for old tax rates instead of section 115BAC. If the
income is below Rs. 8.5 lakhs, opting section 115BAC is
advantageous as the income-tax rates are less than 20% applicable under the
regular provisions.
Where, the assessee is having income much above Rs. 15
lakhs since the tax rate is the same on such income exceeding Rs. 15 lakhs, if
the assessee has Chapter VI-A deduction exceeding Rs. 2,50,000 then it is
better to opt for old scheme and not section 115BAC. This is due to the reason
that at Rs. 15 lakhs, the tax difference is Rs. 75,000 between the options and
this could be offset, if the investments/eligible deductions exceed Rs.
2,50,000.