How Much Income Tax You Can Save In Assessment Year 2020-21
The income tax assessee can make use of latest changes in laws to make most of the earnings in AY2020-21
The government has announced a number of income tax-related changes in Budget 2019. Among these changes with respect to income tax, a full rebate to individuals with annual income up to Rs. 5 lakh has been announced. Once these changes come into force, many income tax assessees will be able to benefit by planning their investments, say financial advisors. From the 25 per cent increase in standard deduction threshold to the existingSection 80C deductions, the taxpayer can make use of income tax laws to make most of the income earned in assessment year 2020-21. (Also read: How to calculate income tax liability)
The government has said that individuals having gross income up to Rs. 6.5 lakh may not be required to pay any income tax subject to investments in instruments such as provident fund.
With additional deductions such as interest on home loan up to Rs. 2 lakh, interest on education loans, National Pension Scheme contributions and medical insurance, persons having even higher income will not have to pay any tax, it noted.
Careful planning of investments as per income tax laws can lead to significant reduction in the person’s overall tax outgo, say financial advisors.
“The proportion of the middle class families earning Rs. 10 lakh or more is relative low therefore the proposed budgetary provisions of tax rebates would impact a large section of the salaried middle class,” said Rahul Agarwal, director, Wealth Discovery/EZ Wealth.
But how much income tax can one save as per latest rules in assessment year 2020-21?
“An individual earning a salary of Rs. 10 lakh can save up-to Rs. 58,760 in taxes by making investments under sections 80C, 80D, 8CCD and 24 of the Income Tax Act, and also utilizing the standard deduction,” explained Mr Agarwal, citing the following example.
| Resident individual (not a senior citizen) | AY2019-20 | AY2020-21 | |
|---|---|---|---|
| (A) | Income under the head Salary | 1,000,000.00 | 1,000,000.00 |
| Standard Deduction | -40,000.00 | -50,000.00 | |
| Net Salary | 960,000.00 | 950,000.00 | |
| (B) | Income under the head house property | ||
| Notional Rent | 300,000.00 | 0 | |
| Less: | |||
| (1) Standard Deduction @ 30% | 90,000.00 | 0.00 | |
| (2) Interest on house loan | 200,000.00 | 200,000.00 | |
| Net Income from house property | 10,000.00 | -200,000.00 | |
| Gross Total Income(A+B) | 970,000.00 | 750,000.00 | |
| Less: Deductions under chapter VI-A | |||
| u/s 80C | 150,000.00 | 150,000.00 | |
| u/s 80CCD | 50,000.00 | 50,000.00 | |
| u/s 80D | 50,000.00 | 50,000.00 | |
| Total Income | 7,20,000.00 | 5,00,000.00 | |
| Gross Tax | 56,500.00 | 12,500.00 | |
| Less: Rebate u/s 87A | 0 | 12,500.00 | |
| Balance Tax | 56,500.00 | – | |
| Education Cess @ 4% | 2,260.00 | – | |
| Total Tax | 58,760.00 | 0 | |
Here are important things to know about key income tax changes announced in Budget 2019:
- A full tax rebate for individuals with annual income up to Rs. 5 lakh
- Increase in standard deduction to Rs.50,000 (assessment year 2020-21) from Rs. 40,000 (assessment year 2019-20)
- House owners allowed to claim relief on second property as self-occupied
- Profit of up to Rs. 2 crore from sale of residential property to be invested in not one but two properties to avoid capital gains tax
[“source=ndtv”]