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Tax slabs: Not so taxing anymore

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‘With great powers comes great responsibilities’ hence once you start earning you become a responsible citizen and start filing for your income tax returns. But how will you determine how much tax needs to be paid on your earnings? How to file income tax returns? What are the ways to save tax liabilities? These are some basic questions that pop up for young taxpayers. The finance minister has divided people from various income brackets into slabs.

What is an income tax slab?

Tax slabs: Not so taxing anymore

Income tax laws divide taxpayers into different groups as per their taxable income and levy income-tax at different rates. These groups are called income-tax slabs. The basic tax exemption limit for an individual depends on the age and income status.  For instance, if one is below 60 years and has an income up to Rs 2.50 lacs, then there is no income-tax obligation currently, as individuals with taxable income up to Rs 2.50 lacs are exempt from income tax. It would be unfair to levy the same tax on every individual as each of them would earn differently. To maintain fairness and ensure that the poor don’t have to succumb to the burden of heavy taxation like they did in the older times. A tax slab helps in deciding the tax a person will pay based on their annual income. Because of this, there is a balance maintained within the system.

Income tax slabs for FY 20-21

Income tax slab for individuals under 60 years of age

Individuals with a net taxable income of up to Rs 5 lacs in a financial year will be able to avail tax rebate of Rs 12,500 under section 87A in new concessional tax regimes. This means that individual taxpayers with net taxable income of up to Rs 5 lacs will continue to pay zero tax

Manish is a 32-year-old individual professional earning Rs.16 lacs per annum. He is planning to make certain investments in this financial year to save his income tax liability. He is planning to make Rs.1.5 lacs investment under Section 80C and investments in NPS under Section 80CCD of Rs. 50,000. He is also paying health insurance premium of Rs. 25,000 which he can avail as a deduction under Section 80D. He has an ongoing home loan as well. He will avail a deduction of Rs.2 lacs on home loan interest amount as well under Section 24.

Let’s check the income tax payable for FY 2020-21:

If you are a senior citizen with Rs 10 lacs income, let’s calculate how much income tax is deducted from your income:

Income tax slab for individuals above 80 years (Super senior citizens)

Mr Sharma is 87 year old, earning Rs 10 lacs per annum, let’s find out how much income tax he is liable to pay

Conclusion:

Financial planning at the start of 2021 is vital as the medical uncertainties continue to prevail. After understanding the various tax brackets you are in the best position to understand the tax liabilities. One way of reducing the tax liabilities is by purchasing a health insurance policy as there is a tax exemption under section 80D.

Disclaimer:  The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.