FY 2020-21, FY 2021-22 onward years – New Tax Rates – To benefit NRIs, Foreign Citizens, Expatriates, Seafarers

Budget 2020 – Effecting 2020-21 onwards New Tax Slabs Provisions – Residents, Non-Residents (NRIs, Foreign Citizens)

New Income Tax Slabs – Section 115BAC of Income Tax Act

Reference to Budget 2020, presented on Feb 1, 2020 by the Union Finance Minister of India, duly passed by the Parliament on March 23, 2020, new Income Tax Slabs have been provided. The same is applicable for FY 2020-21 as well FY 2021-22 and onward years. A new section 115BAC has been inserted in the Act to give effect to this Tax Slab. Hereunder are the Tax Slabs (U/s 115BAC) as well the normal Income Tax Rates i.e. existing rates:

Tax Slabs (New as well Existing)
Taxable Income Slabs
New Tax Rates
Existing Tax Rates

(Normal Tax Slab Rates)

Upto to Rs 2.5 Lakh Nil Nil
Rs 2.5 Lakh to Rs 5 Lakh 5% 5%
Rs 5 Lakh to Rs 7.5 Lakh 10% 20%
Rs 7.5 Lakh to Rs 10 Lakh 15% 20%
Rs 10 Lakh to Rs 12.5 Lakh 20% 30%
Rs 12.5 lakh to Rs 15 Lakh 25% 30%
Rs 15 Lakh and above 30% 30%

Note: Hence, taking an example of Taxable Income of Rs 15 Lakh, in prima facie computation, the new tax slabs are providing tax benefit of Rs 75,000. I.e. under the existing rates the tax arises Rs 262,500, and under the new tax slab rates the tax arises Rs 187,500. Therefore, a tax benefit of Rs 75,000. Surcharge and cess benefit will be separate. However, there is an impact of Deductions, Exemptions, Reliefs, which assessee will have to scrifice. Hence, there need to calculate the benefit of these deductions, exemptions and reliefs to decide that which option is better.

Deductions, Exemptions, Reliefs – To Forgo In New Tax Slabs

Hereunder are the Deductions, Exemptions and Reliefs, which an Individual will have to sacrifice to avail the benefit of New Tax Slabs u/s 115BAC:

  • Deduction under section 80C (upto Rs 1.50 Lakhs)
  • Deduction under section 80CCD (upto Rs 50,000)
  • Deduction u/s 80D/DD/DDB/80U (medical insurance, exps, disablity)
  • Deduction u/s 80G (towards Donations)
  • Deduction u/s 80E (Education Loan Intt)
  • Deduction u/s 80TTA/80TTB (Rs 10000/50000) (Towards Interest Income)
  • HRA Exemption to salaried employees (Sec 10(13A)
  • Standard deduction from Salary u/s 16 (Rs 50,000)
  • Professional Tax
  • Other exemptions to employees (Sec 10(14)/(17)/(32))
  • House loan Interest – self occupied property (Rs 2 Lakh)
  • Deductions Under Chapter VIA (except 80CCD(2) and 80JJAA)
  • Various other deductions, exemptions, as per facts of assessee

Therefore, assessee need to check the benefits of tax exemptions, deductions etc he is entitled to as per his facts, and then decide that which option is better for him.

New Tax Rates (Sec 115BAC) – Important Points

  • The New income tax slabs are optional for assessee to choose.
  • Assessee can choose the option any time before the due date of filing of ITR for FY 2020-21.
  • The new tax slab scheme is available for Individuals and HUF only.
  • A Person having income from sources (other than business or profession) e.g. Non-Residents (NRIs, PIOs) can opt for this scheme on year to year basis.
  • A person, who has business or profession income, can opt for this option once. Once, he opts, he can withdraw from this scheme, however, thereafter he cannot choose again for this option.
  • To claim the benefit of new tax slab, the business/profession income assessee also needs to file Form 10IE before filing the ITR Form. Other assessee can claim the benefit directly in the ITR form without filing any separate form.
  • Benefit of new tax slabs (u/s 115BAC) cannot be claimed if ITR is filed after due date. Hence, one must keep in mind to file the ITR before due date to claim new tax slab benefit.
  • In new income tax slabs, assessee is not allowed to claim a lot of exemptions, deductions and reliefs.
  • Hence, assessee can do an analysis and choose the tax slabs, which is more beneficial.

Analysis of New Slab Option

  • Maximum tax benefit under new slab option is for Rs 75,000 plus surcharge and cess.
  • However, tax benefit forgone need to be calculated as per the facts of case of each assessee and then option can be excercised.
  • Existing Slab Beneficial example: if an assessee is doing tax saving investment of Rs 1.50 lakh and also claiming house loan interest deduction of Rs 2 lakh. In this case, tax benefit forgone will be Rs 1,05,000 (@30% of 3.50 Lakh). Hence, existing tax slab will be beneficial for assessee.
  • New Slab Beneficial example: if an assessee is not doing tax saving investment nor claiming any other deduction/exemption, and he falls in total income bracket of more than Rs 15 Lakh. In this case, assessee will be benefitted by Rs 75,000 plus surcharge and cess.

New Tax Slabs Benefits– Non-Residents (NRIs, Expatriates, OCIs, PIOs)

New tax slabs are beneficial for Indians working & living abroad (i.e. NRIs), Foreign Citizens working in India (Expatriates), Foreign Citizens of Indian Origin working & living abroad (PIOs, OCIs). Here are the relevant points that how the new tax slab system is beneficial for NRIs, OCIs etc:

  • Generally, NRIs/OCIs have income in India from: Bank Interest, Rent from property, dividend from shares/mutual funds, capital gain income (mutual fund, property sale) etc.
  • Expatriates, generally have source in the form of salary and interest income.
  • All these categories, ie NRIs, OCIs, Expatriates, niether wish to do any tax saving investment in India (section 80C – Rs 1.50 Lakh) nor do any borrowing for house purchase (interest on house property – Rs 2 Lakh) nor eligible for any other major deduction/exemption. Hence, their tax benefit loss is not much due to deduction/exemption forgone.
  • Now, the benefit measure, of New Vs Existing Tax Slab, would depend on the size of income these NRIs, OCIs, Expatriates are earning in India. More the income in India, new slabs will be beneficial. If income is not much (say it is within Rs 5-6 Lakh Rs) then existing slabs will be providing better tax relief.
  • One more benefit would be, that ITR filing & processing will also be more convenient and effective in case of new tax slab chosen.

Comparison Between New Tax Vs Old Tax

Taxable Income New Tax Rates Tax (Rs) Old Existing Tax Rates Tax (Rs) Tax Benefit Under New Rates
Rs 2.5 Lakh Nil Nil Nil Nil Nil
Rs 5 Lakh 5% 12,500 5% 12,500 Nil
Rs 7.5 Lakh 10% 37,500 20% 62,500 25,000
Rs 10 Lakh 15% 75,000 20% 112,500 37,500
Rs 12.5 Lakh 20% 125,000 30% 187,500 62,500
Rs 15 Lakh 25% 187,500 30% 262,500 75,000
Rs 20 Lakh 30% 337,500 30% 412,500 75,000
Rs 30 Lakh 30% 637,500 30% 712,500 75,000
Rs 50 Lakh 30% 1,237,500 30% 1,312,500 75,000

Frequently Asked Questions (FAQs) – Budget 2020

New Income Tax Rates Effective FY 2020-21 Onwards – Impact On Non-Residents (NRIs, Foreign Citizens)

 Q: I am an NRI? Whether I am eligible for new Income Tax Rates proposed in Budget 2020? Whether New Tax Slab Benefit Be Claimed U/s 115BAC if ITR is filed after Due Date? What needs to be done to claim benefit of New Tax Slab u/s 115BAC?

Ans: Yes. New tax slabs, section 115BAC inserted by Budget 2020, is applicable for Individuals and HUFs. It does not differentiate the residential status of assessee to the extent assessee is Individual or HUF. Hence, an NRI bieng an Individual is eligible for New Tax Slab rates wef FY 2020-21 (AY 2021-22). The same is also applicable for FY 2021-22 and onward years. Further, the benefit of New Tax Slab u/s 115BAC cannot be claimed if ITR is filed after Due Date of ITR filing. Hence, to claim the new tax slab benefit, ITR must be filed within due date. This is applicable for all Residents as well Non-residents (NRIs etc). To claim the benefit of sectio 115BAC i.e. new Tax Slab, the business/profession income assessee needs to file a separate form 10IE before ITR Filing, however, others (including NRIs) need not to file any such form and directly claim the benefit of new slab in the ITR form.