As per Budget 2020, Benefits given in new income tax Slab rate for FY 2020-21 are compensatory for exemptions withdrawn. What is logic behind this.?

Question BankCategory: Income TaxAs per Budget 2020, Benefits given in new income tax Slab rate for FY 2020-21 are compensatory for exemptions withdrawn. What is logic behind this.?
Jasmine asked 5 months ago

As per Budget 2020, Benefits given in new income tax Slab rate for FY 2020-21 are compensatory for exemptions withdrawn. What is logic behind this.? Why exemptions & deduction are withdrawn? How new slab rate are framed. ? We have to choose between old vs New slab, how to decide which one is better for me?

2 Answers
ashish answered 5 months ago

 
In Budget 2020, going far from guesses, Finance minister have introduced a new logic in Income tax slab rate. Nobody was having any guess that such a surprise could be seen in budget 2020, At one hand finance minister announced reduction in slab rate but on the other hand she made it optional and to use new slab, we have to forgo various exemptions & deductions. 

Income Level
OLD Slab
New Slab

Upto 2.5 Lakh
NIL
NIL

2.5 Lakh to 5 lakh
5%
5%

5 Lakh to 7.5 Lakh
20%
10%

7.5 Lakh to 10 Lakh
20%
15%

10 Lakh to 12.5 Lakh
30%
20%

12.5 Lakh to 15 Lakh
30%
25%

above Rs. 15 Lakh
30%
30%

 

As per provision of sec 115BAC , Assessee has the option to choose any from above slab rate and the option shall be exercised for every previous year where assessee has no business income, In other cases option once exercised shall be valid for current & subsequent previous years.

Some experts support this and some are having reverse opinion. Refer following points to understand the logic behind this;-

  1. In after budget interview, finance minister indicated that various exemptions & deduction of income tax shall be withdrawn in phased manner. Income tax Act has become most complicated act due to having a large number of provisions, exemptions & deductions. We are in simplification process and slab rate cut of budget is part of this simplification process. 
  2. Further by comparing old & new slab rate we can found that benefit of exemptions & deduction of amount rs. 250000/- is added to achieve new slab. This is a great benefit for those who were not claiming any exemption or deduction, now a benefit of deduction equal to Rs. 250000/- is given to all in new slab. see following comparison.
  3. If benefit which we have to let go to join new scheme is Rs. 250000 or more than to remain in old scheme may be beneficial and if it is less than 250000 then new scheme is beneficial (if your TTI is above Rs. 12.5 lakh).
  4. As many allowances have  been  provided  through  notification  of  rules,  it  is  proposed  to  carry  out  amendment  of  the Income-tax Rules, 1962 (the Rules) subsequently, so as to allow only following allowances notified under section 10(14) of the Act to the Individual or HUF exercising option under the proposed section: (1) Transport Allowance granted to a divyang employee to meet expenditure for the purpose of commuting between place of residence and place of duty (2)Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office;
    (3)Any Allowance granted to meet the cost of travel on tour or on transfer;(4)Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.
  5. Click to see comparison.
Tina Bedi answered 4 months ago

In budget 2020, benefits given in income tax slab rate in compensatory for withdrawal of various exemptions and deductions. 
The logic behind this is that Government planning to withdraw all exemption and deduction in income tax in a phased manner….For FY 2020-21 new slab is optional but it may become compulsory in next one to two year…this is done to make tax calculation and assessment easy..

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