Tax Rates and Income tax exemptions for salaried employees in India
In India, generally, the income tax is imposed on individual taxpayers or salaried employees depending on the slab system in which different tax rates have been officially set down different slabs and such tax rates keep increasing on the basis of the individual’s income slab.
Such tax rates and tax slabs tend to experience a change in every year’s budget. Importantly, Budget 2020 has declared a new income tax regime which includes that from Financial year 2020-21 onwards, the individuals will have the choice to pay their taxes as per new tax slabs .
Such basic exemption of Rs 2.5 lakhs is for your overall income for the year. You cannot claim this against various incomes separately. Therefore, you must sum up all your income during the year including the salary income from both your employers and then claim a basic exemption of Rs 2.5 lakhs from such income.
There are three categories of salaried or individual taxpayers:
- Individuals whose age is below 60 years that includes both the residents as well as non-residents has to pay Income Tax Return Filing Online in India
- Resident Senior citizens who are above 60 years of age but below 80 years of age
- Residents who are 80 years of age or Super senior citizens
Check out the Income Tax Slabs for different financial years
Below is the Income Tax Slabs for individuals or taxpayers who come under 60 years of age under new tax regime – Applicable to FY 2020-21 (AY 2021-22)
Income Tax Slab
|Up to INR 2.5 lakh||NIL|
|INR 2.5 lakh to INR 5 lakh||5% (under section 87A, tax rebate of Rs 12,500 available )|
|INR 5 lakh to INR 7.5 lakh||10%|
|INR 7.5 lakh to INR 10 lakh||15%|
|INR 10 lakh to INR 12.5 lakh||20%|
|INR 12.5 lakh to INR 15 lakh||25%|
|INR 15 lakh and above||30%|
The tax computed on the basis of such rates will be affected by health and education cess of about 4%. Any salaried taxpayer or individuals who come under to be taxed as per the new tax regime from FY 2020-21 onwards will have to cease certain exemptions and deductions.
As per section 80U, anyone suffering from a disability is eligible to get an extra income tax exemption from their taxable income. In such cases, Rs 50,000 can be deducted from their taxable income. Moreover, in the case of severe disabilities, the deductions can even be Rs 1, 00,000. Below is the list of deductions and exemptions that a taxpayer or salaried individual will have to give up when opting for the new tax regime.
- Leave Travel Allowance (LTA)
- House Rent Allowance (HRA)
- Daily expenses during the employment
- Relocation allowance
- Helper allowance
- Children education allowance
- Other special allowances [Section 10(14)]
- Standard deduction
- Professional tax
- Interest on housing loan (Section 24)
- Chapter VI-A deduction such as 80C,80D, 80E and so on and the except Section 80CCD(2) and 80JJA)
As per the current income tax rules in India, the income tax rate on resident taxpayers differs depending on their age. There are various tax slabs relevant to the taxpayers for the financial year 2018-19 and 2019-20. For example, an individual who comes under the resident category, with an income less than Rs 2.5 lacs and his/her age is below 60 years is free from paying income tax.
Calculate your Income Tax using this Link: Income Tax Calculator
Following are the tables for the latest income tax slabs for the financial year 2019-20.
Income Tax rate and slabs for Individuals or Taxpayers for FY 2019-20, who come under 60 years of age – Part I
Income Tax Slab
Tax Rate for Individual & HUF under the age of 60 Years
|Up to ₹2,50,000*||Nil|
|₹2,50,001 to ₹5,00,000||5% of total income that exceeds ₹2,50,000|
|₹5,00,001 to ₹10,00,000||₹12,500 + 20% of total income that exceeds ₹5,00,000|
|Above ₹10,00,000||₹1,12,500 + 30% of total income that exceeds ₹10,00,000|
- Individuals whose income is less than ₹ 2,50,000 has no tax
- 0%-5% tax for the individual whose income lies in between ₹ 2.5 lacs to 5 lacs for different age groups
- 20% tax for the individual whose income lies in between ₹ 5 lacs to 10 lacs
- 30% tax for the individual whose income is above ₹ 10 lacs
- Under section 87AA, a tax rebate is allowed to a taxpayer and the maximum amount of
Rs 12,500 tax rebate is allowed for the individual with total income up to Rs 5 lakh for FY 2019-20
- And under Sec 80C, an individual can invest upto ₹ 1.5 lacs and can save up to ₹ 46,800 in taxes.
Income Tax Exemption
According to chapter III of Income Tax act, 1961, there is a provision of income tax exemption for salaried individuals or taxpayers. There are few specified incomes in which you can obtain an exemption from paying income tax. To explain it clearly, an individual at the time of computing his income tax will not add certain incomes and the most common incomes that are excused from income tax are mentioned below:
House Rent Allowance – HRA tax exemption: Salaried individuals or salaried taxpayers can get house rent allowance (HRA) from their employer. Under Chapter 10 of Income Tax Act, an exemption against HRA is possible if the salaried individuals or salaried taxpayers are living in a rented house and pays for the accommodation to the owner.
While presenting the Union Budget, the Indian Finance Minister usually announces a standard deduction for salaried employees or taxpayers which vary every year.
Leave Travel Assistance – LTA tax exemption
Leave travel assistance (LTA): As per the income tax law, there is an option for an LTA exemption to salaried employees, limited to travel expenses obtained during their leaves. Importantly, this tax exemption doesn’t include the complete expense for the entire trip such as food expenses, entertainment, shopping, and so on. Actually, the LTA only covers domestic mode of travel such as railway, air travel, or public transport but not the cost of international travel
Section 80C, 80CCC and 80CCD(1):As per Section 80C, an individual or an HU who spends or invests on stipulated tax-saving routes can claim for the tax deduction up to Rs. 1.5 lakh. Some of such investments are given below which are eligible for an exemption under Section 80C, 80CCC and 80CCD(1) up to a maximum of Rs 1.5 lakh.
- Life insurance premium
- Equity Linked Savings Scheme (ELSS)
- Employee Provident Fund (EPF)
- Annuity/ Pension Schemes
- Principal payment on home loans
- Tuition fees for children
- Contribution to PPF Account
- Sukanya Samriddhi Account
- NSC (National Saving Certificate)
- Fixed Deposit (Tax Savings)
- Post office time deposits
- National Pension Scheme
Medical Insurance Deduction (Section 80D): As per Section 80D, a salaried individual can claim on medical expenses. An individual can save tax through their medical insurance premiums which are paid for them and for their family and dependent parents. The limit for this deduction is Rs 25,000 for premiums paid on health insurance.
Interest on Home Loan (Section 80C and Section 24): Another tax saving tool is the interest which is paid on your home loans. This is one of the good options to claim up to Rs. 2 lakh as a tax deduction.
Other tax exemptions and deduction for the salaried individual are:
- Mobile reimbursement
- Books and periodicals
- Food coupons
- As per Section 80E, deduction for Loan for Higher Studies
- Income tax exemption on relocation allowance
- Deduction for Donations (Section 80G)
- Health club facility provided by employer
- Deduction on Savings Account Interest (Section 80TTA)
- Gifts or vouchers provided by employer
- Tax treatment based on Notice Pay and Joining Bonus
- Cab Facility transport provided by employer
- Medical expenditure incurred outside India on employee
- Additional Deduction on Home Loan interest as per Section 80EE and Section 80TTA
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