“The Union Finance Minister has presented the budget for the Financial Year 2020-2021. A new regime is introduced in the budget 2020-2021. These changes have an impact on the income tax calculations w.e.f April 2020. Based on the new budget, taxpayers (employees) can now select between the old regime and the new regime to calculate income tax. The old regime has older tax rates and exemption components as in the previous financial year. The new regime will have lower tax rates and a few numbers of exemptions.”
What is the key highlight of Budget Changes 2020-2021?
The most important highlight of Budget Change 2020-2021 is the introduction of the New Tax Regime. As per the Budget Changes 2020-2021, an employee can choose between the old tax regime and the new tax regime.
What are the income tax rates defined for old and new tax regime?
`The income tax rates and surcharge rates as per the old and new regime are as follows:
| Income Tax Slabs | Old Regime | New Regime | Surcharge Rate |
|---|---|---|---|
| ₹0 - ₹2.5 lakh | exempted | exempted | 0 |
| ₹2.5 lakh - ₹5 lakh | 5% | 5% | 0 |
| ₹5 lakh - ₹7.5 lakh | 20% | 10% | 0 |
| ₹7.5 lakh - ₹10 lakh | 20% | 15% | 0 |
| ₹10 lakh - ₹12.5 lakh | 30% | 20% | 0 |
| ₹12.5 lakh - ₹15 lakh | 30% | 25% | 0 |
| ₹15 lakh - ₹50 lakh | 30% | 30% | 0 |
| ₹50 lakh - ₹1 crore | 30% | 30% | 10 |
| ₹1 crore - ₹2 crore | 30% | 30% | 15 |
| ₹2 crore - ₹5 crore | 30% | 30% | 25 |
| ₹5 crore - Above | 30% | 30% | 37 |
What is the difference between old and new regime?
The key difference between the old regime and new regime is in tax rates and the number of exemptions available. The new regime has lower tax rates and fewer exemptions available than last financial year’s i.e old regime.
Which exemptions are unavailable under the new regime?
The new regime includes lower taxation rates than last financial year. However, under the new regime following exemptions are unavailable:
- Under section 16 - Standard Deductions, Entertainment allowances, Employment/ Professional tax.
- House Rent Allowance (HRA).
- All chapter VIA section - 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EEA, 80EEB, 80G etc {Excluding Section 80CCD(2)}.
- Leave Travel Concession (LTA).
- Under section 10(14) - Special Allowance such as Children education allowance, Hostel Allowance, Transport Allowance, Uniform Allowance, etc.
- Under section 24 - Interest on borrowed loan for a self-occupied property.
- Set off of any loss, under the head “Income from house property” with any other head of income.
What are the similarities between old and new regime?
The following calculations are common for both the old and new regime:
- Rebate under section 87A: Taxpayers with an annual income of up to Rs 5 lakh will continue to get the tax rebate of Rs 12,500 on the calculated tax.
- Health, Education Cess, and Surcharge Rates remain the same.
What is the default regime setting in the application?
The old tax regime is selected by default in the application for employees who have not declared IT.
Will new budget affect the March 2020 payroll?
No, the latest budget changes are effective from April 2020 payroll. All the payroll previous to the month of April 2020 remains unaffected.
How can employees decide which regime is best for them?
The greytHR application makes it easier for employees to choose between the two regimes. During IT declaration, employees will be able to compare both old and new regimes based on their investments declared. Our application will also highlight the Maximum Benefit tag on the regime which has a lower net tax amount.
Does the new budget affect contract employees?
No, the new budget does not offer any changes in tax calculation for contract employees.
Can an employee choose regime during Proof of Investment?
Yes, the employee can also choose a regime during Proof of Investment. Here, the employee will get an option to change the regime for the last time.
How is the tax calculated for employees without PAN in the new budget?
The income tax calculation for the employees without PAN is similar to the previous budget. This calculation is also the same for old and new regimes. If the income of employees falls under the tax rate of 20%, then the employees will be charged 20% tax irrespective of the tax rates. For the employees falling under the tax rate higher than 20%, the tax will be deducted according to the actual tax calculation. Let’s understand the tax calculation for employees without PAN with the help of the following table:
| Old and New Regime Income Tax Rates | Tax Rates for employees without PAN |
|---|---|
| 0% - 20% | 20% |
| 25% | 25% |
| 30% | 30% |
The Union Finance Minister has presented the budget for the Financial Year 2020-2021. A new regime is introduced in the budget 2020-2021. These changes will have an impact on the income tax calculations w.e.f April 2020.
Based on the new budget, taxpayers (employees) can now select between the old regime and the new regime to calculate income tax. The old regime has older tax rates and exemption components as in the previous financial year. The new regime will have lower tax rates and a few numbers of exemptions.
The tax slab rates as per the Old and New regime are as follows:
| Income Tax Slabs | Old Regime | New Regime | Surcharge Rate |
|---|---|---|---|
| ₹0 - ₹2.5 lakh | exempted | exempted | 0 |
| ₹2.5 lakh - ₹5 lakh | 5% | 5% | 0 |
| ₹5 lakh - ₹7.5 lakh | 20% | 10% | 0 |
| ₹7.5 lakh - ₹10 lakh | 20% | 15% | 0 |
| ₹10 lakh to ₹12.5 lakh | 30% | 20% | 0 |
| ₹12.5 lakh - ₹15 lakh | 30% | 25% | 0 |
| ₹15 lakh - ₹50 lakh | 30% | 30% | 0 |
| ₹50 lakh - ₹1 crore | 30% | 30% | 10 |
| ₹1 crore - ₹2 crore | 30% | 30% | 15 |
| ₹2 crore - ₹5 crore | 30% | 30% | 25 |
| ₹5 crores and Above | 30% | 30% | 37 |
Under the old regime, taxpayers will continue to enjoy the same benefits and deductions as before. Under the new regime, tax rates are lower than before, provided taxpayer let goes of the following exemptions and deductions:
- Under section 16 - Standard Deductions, Entertainment allowances, Employment/ Professional tax.
- House Rent Allowance (HRA)
- All chapter VIA section - 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EEA, 80EEB, 80G etc {Excluding Section 80CCD(2)}
- Leave Travel Concession (LTA)
- Under section 10(14) - Special Allowance such as Children education allowance, Hostel Allowance, Transport Allowance, Uniform Allowance, etc
- Under section 24 - Interest on borrowed loan for a self-occupied property.
- Set off of any loss, under the head “Income from house property” with any other head of income.
Similarities in Old and New Regime
The following calculations are common for both the old and new regime:
- Rebate under the section 87A: Taxpayers who have an annual income up to Rs 5 lakh, will continue to get a tax rebate of Rs 12,500 on the tax calculated.
- Health, Education Cess, and Surcharge Rates remain the same.
Tax Comparison Examples: Old and New Regime
To understand the difference between the calculations of old and new regime, we have provided two examples. The first example shows income tax calculation if the taxpayer has made certain investments and the second example shows income tax calculation if the taxpayer has not made any investment.
Scenario 1: Assume that taxpayer has invested in 80C, 80D and have HRA. Tax under both regimes will be calculated as follows:
| Old Regime Calculation | New Regime Calculation | |
|---|---|---|
| Gross Income | 850000 | 850000 |
| Tax on Employment: Sec 16(iii) | 2400 | 0 |
| Standard Deduction: Sec 16(ia) | 50000 | 0 |
| House Rent Allowance: Section 10(13A) | 100000 | 0 |
| Leave Travel Assistance: Sec. 10(5) | 60000 | 0 |
| 80C exemption | 150000 | 0 |
| 80D exemption | 25000 | 0 |
| Taxable Income | 462600 | 850000 |
| Calculated tax | 10630 | 52500 |
| Rebate u/s 87A | 10630 | 0 |
| Net tax + Cess | 0 | 54600 |
Scenario 2: Assume that the taxpayer has not done any investments. Tax under both regimes will be calculated as follows:
| Old Regime Calculation | New Regime Calculation | |
|---|---|---|
| Gross Income | 850000 | 850000 |
| Tax on Employment: Sec 16(iii) | 2400 | 0 |
| Standard Deduction: Sec 16(ia) | 50000 | 0 |
| Taxable Income | 797600 | 850000 |
| Calculated tax | 59520 | 52500 |
| Rebate u/s 87A | 0 | 0 |
| Net tax + Cess | 61901 | 54600 |
Additional Changes in Budget 2020-2021
Others Changes introduced in Budget 2020-2021:
- Section 80EEA extended: Loan date is extended from 31st March 2020 to 31st March 2021. An individual can claim additional interest of Rs.1.5 Lac (over and above existing Rs. 2 Lac), if the individual has taken a loan between 1st April 2019 and 31st March 2021.
- If the Employer’s contribution towards PF, NPS or any recognised superannuation exceeds INR 7,50,000 per annum, the excess amount would be treated as perquisite and will become taxable.
To know more, click here to find a copy of the finance bill.
How greytHR has implemented the Budget Changes 2020-2021
greytHR is now ready with the budget changes for the current financial year 2020-21. These changes will be reflected in the system from the April 2020 payroll. Budget changes are enabled by default in our application with effect from April 2020 payroll.
Disabling the Budget 2020-2021 changes
At any point in time, greytHR allows you to revert to the previous financial year(2019-2020) budget. Perform the following actions to revert back to the older budget:
- Navigate to either Payroll > Payroll Inputs > Salary. You will see the following information box with the Revert button.
Please note that you can also revert back to the older budget from Payroll > Process > Payroll Process. - To revert back the greytHR application to the older budget for the purpose of payroll processing, click Revert. The following confirmation popup appears:
- Click Confirm to revert back to the old budget changes.
Enabling the Budget 2020-2021 changes
As an admin, you can re-enable the current financial year budget changes, perform the following actions:
- Navigate to Payroll > Payroll Inputs > Salary. You can view the following information box with the Enable button.
Please note that you can also enable these changes from Payroll > Process > Payroll Process. - Click Enable, to switch the greytHR application to the budget 2020 changes. The following popup appears:
- Select a default income tax regime from the Select Regime drop-down menu. Kindly note it is a mandatory field and you cannot process to next step unless you select a default regime.
- Click Update. A success toast message appears.
Changing the Default Regime Settings
- Navigate to Payroll > Payroll Inputs > Salary. You will see the following information box stating that the new budget is already enabled for the year 2020. This information box will appear effective from Apr’2020 payroll.
Please note that you can also change the default regime settings from Payroll > Process > Payroll Process. - Old tax regime is selected by default for employees who have not declared IT. To change the default regime settings, click
information box. Following popup appears:
- Select a Default income tax regime from the Select drop-down menu. Default regime will be assigned for the employees who have not declared IT.
- Click Update to change the default tax regime settings.
https://support.greytip.in/hc/en-us/sections/360008485812-Budget-Changes-2020-2021