[VIDEO] How To Calculate Income Tax in FY 2020-21 with Examples | Old vs New Tax Slab Rates

In Budget 2020, we were informed about the New Slab Rates that will be introduced from FY 2020-21. Many have the questions in mind about the conditions of using New Slab Rates that were introduced and How the Income Tax will be Calculated. Let's decode.

Income Tax Calculator Video:

Here is a video that calculates Income Tax using Excel Calculator. Watch to know how your Income Tax will be calculated in FY 2020-21 using some Excel Examples:

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In this video, we have seen How to Calculate Income Tax for FY 2020-21 based on Old and New Tax Slab Rates and which one you should choose to pay less Income Tax.

Overview:

• New Tax Slab Rates are Reduced Tax Slab Rates
• You will have to forgo all the Deductions if opting for New Tax Slab Rates. This means you will not get benefits of various investments under Section 80C, Section 80D, Standard Deduction and any other deduction you used to claim in previous years with Old Tax Slab Rates

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Here are the Old & New Tax Slab Rates:

Income Tax Slab Rates for FY 2020-21

As we can see in above table, if someone's income is Rs. 8 Lakhs in a Financial Year, he/she falls under 15% Income Tax bracket based on New Tax Slabs whereas he/she falls under 20% Income Tax Bracket based on Old Tax Slabs.

Now, it depends on you which Tax Slab Rates you want to choose to calculate your Income Tax for FY 2020-21. The only point you need to remember is that you need to forgo all Investment options or Deductions in case you want to opt for New Tax Slab Rates. This means you cannot claim Deductions under any Section, if opting for New Tax Slab Rates.

Should you choose Old or New Income Tax Slabs?

To answer this question, it depends on person to person. Every individual is having different incomes in a Financial Year.

As we saw in above Income Tax slab rates, if your income is in the range of Rs. 5 Lakh to Rs. 10 Lakh, you can opt for Old Income Tax Slab rate, make some Tax saving investments and Save Income Tax.

Here's a video which explains How to Save Income Tax?

As you can see in above video, you don't have to pay any Income Tax even if your Annual Income is up to Rs. 10 Lakhs. This is possible when you make some Tax saving investments and opt for Old Income Tax Slab Rates for your Income Tax Calculation.

These Tax Savings investments include Public Provident Fund, National Savings Certificate, Employee Provident Fund and many other that helps you Save your Income Tax.

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When you should choose New Income Tax Slab Rates?

It's very clear that you can make Tax Saving investments and opt for Old Income Tax Slab Rates if your Annual Income is up to Rs. 10 Lakhs.

In case your Annual Income is above Rs. 10 Lakhs in a Financial year, it would be wise to choose New Income Tax Slab Rates to reduce your Income Tax Liability.

Income Tax comparison on Income = Rs. 12 Lakhs

As we can see in above image of comparison between Old and New Income Tax Slab Rates on Income = Rs. 12 Lakhs,

Income Tax using Old Slab Rates = Rs. 1,79,400

Income Tax using New Slab Rates = Rs. 1,19,600

Income Tax Savings = Rs. 59,800

Note: We have not taken any Tax Saving Investments in above example.

You can also Download my Android App - FinCalC to calculate your Income Tax and decide whether to choose Old or New Slab Rates while calculating Income Tax.

Screenshots from FinCalC App - Income Tax Calculator Android App

Link to Download App - CLICK HERE

As we can see, it would be wise to opt for New Income Tax Slab Rates when your income is above Rs. 10 Lakhs in a Financial Year to have less Income Tax Liability.

It would be wise to opt for New Slab Rates even for Income below Rs. 10 Lakhs if you don't want to invest in Tax Saving instruments. As we can see, New Tax Slab Rates are reduced Tax slab rates which reduces your Tax liability at the expense of not availing any deductions to further save your Income Tax.

You may also like: [VIDEO] PPF Excel Calculator | Public Provident Fund Calculator | PPF Interest Calculation

Tax Rebate u/s 87a:

Another important point is, your Tax Liability (Income Tax) becomes Rs. 0 if your Net Taxable Income is below Rs. 5 Lakhs.

Many should take advantage of this Rebate that we get under Section 87A which helps us in reducing our Tax Liability. In case your Net Taxable Income is below Rs. 5 Lakhs, you need not have to pay any Income Tax.

Example: Let's say your Net Taxable Income equals Rs. 5 Lakhs in FY 2020-21

Based on Old and New Tax Slab Rates, you are liable to pay Rs. 12,500 as Income Tax based on your Net Taxable Income.

But we also have Tax Rebate u/s 87A which provides us a maximum rebate of Rs. 12,500, thus making our Income Tax = Rs. 0.

Note: This Rebate is applicable with both Old and New Tax Slab Rates

How to Get your Net Taxable Income below Rs. 5 Lakhs:

There are 2 conditions based on which you will be eligible for Tax Rebate u/s 87a:

1. In case your Total Income is below Rs. 5 Lakhs. You will be directly eligible to get this Tax Rebate u/s 87a. Income Tax becomes Rs. 0
2. In case your Total Income is above Rs. 5 Lakhs, you need to choose Old Tax Slab Rates while calculating Income Tax and make required Investments in such a way that your Net Taxable Income becomes less than 5 Lakhs

Watch this video to know How to reduce your Net Taxable Income to save Income Tax:

FORMULA:

Net Taxable Income = Total Income - Investments you make

You can make investments under Section 80C (Provident Fund, Public Provident Fund, Fixed Deposits, Equity Linked Savings Schemes, etc), Section 80D (Medical Insurance), Section 80CCD (1B) (National Pension Scheme) and many other options. 

To know more about these Investment options and check their interest calculation, you can WATCH this playlist (Click Here) on YouTube I have created for you

In this way, if you can get your Net Taxable Income to below Rs. 5 Lakhs in FY 2020-21, by investing in various investment options, you need not have to pay any Income Tax.

DOWNLOAD INCOME TAX EXCEL CALCULATOR

FAQs:

1. How do I calculate my Income Tax in FY 2020-21?

Ans. You have the option of choosing between Old Slab Rates and New Slab Rates in order to calculate your Income Tax in FY 2020-21. You can choose based on your income and investments you make to accordingly calculate income tax in FY 2020-21

2. Where can I get Income Tax Calculator for FY 2020-21?

Ans. You can download the Income Tax Calculator Android App to calculate and compare your Income Tax from here - CLICK HERE or you can also download Excel Calculator from here - CLICK HERE

3. How to Save Income Tax in FY 2020-21?

Ans. You can save income tax in FY 2020-21 by opting for Old Income Tax Slab Rates and making required Tax saving investments. You can watch this video to know what are the Tax Saving instruments you can use to Save Income Tax - CLICK HERE

4. Can I save Income Tax using New Income Tax Slab Rates?

Ans. No, you cannot claim any deductions for your investments you make using New Income Tax Slab Rates for FY 2020-21. So your gross income becomes your Net Taxable Income to calculate your Income Tax.

5. Why Income Tax is Rs. 0 on Income up to Rs. 5 Lakhs?

Ans. In case your Net Taxable Income is up to Rs. 5 Lakhs, you get Tax Rebate of maximum Rs. 12,500 under Section 87a which cancels your income tax of Rs. 12,500 on income of Rs. 5 Lakhs, thus making your Total Income Tax = Rs. 0.

This Tax Rebate u/s 87a is applicable to both Old and New Slab Rates.

6. Is Tax Rebate u/s 87a applicable to both old and new slab rates?

Ans. Yes.

7. What is the standard deduction amount for FY 2020-21?

Ans. Standard Deduction applicable for FY 2020-21 is Rs. 50,000. But this is applicable only when you choose Old Income Tax Slab Rates to calculate your Income Tax. Not on New Income Tax Slab Rates.

8. Is interest earned in Savings Account Taxable?

Ans. Yes. But you can claim maximum of Rs. 10,000 in FY 2020-21 under Section 80TTA for interest earned in your savings account using old tax slab rates. Again, this is not applicable in New Tax Slab Rates.

Any amount above Rs. 10,000 as interest in your savings account will be taxable even using old tax slab rates.

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Examples used in Videos and Excel Calculators are for Illustration purpose. The creator of this channel or blog shall not be held responsible in any way by the user of this channel or blog information. Seeking professional help before taking any decision is advised.