Hello Readers!

Through, the Union Budget for the fiscal year 2020-21, the Indian government announced the next tax rates for the individuals as per their income slabs. The new tax rates are a bit lower than the previous fiscal year rates. However, the new tax rates are applicable for those who forgo other exemptions and deductions.

The Indian government has also proposed, that its completely an individual choice and priority, whether he want to opt the deductions and exemptions and pay tax as per previous rates, or they want to opt new low tax rates on Income presented in the Union Budget for the financial year 2020-21.

Here the question is what to choose and which option is better? 

As per the Union Budget, the tax rates have changed up to an income level of Rs 15 lakh, beyond that it is the same that is taxable at a rate of 30%.

Here I am giving a table illustrating the new low tax rates as per individuals income slabs:

Well, from the table you can easily calculate the new low tax rates, here we would like to advise, as the low-income tax rates are tempting, don’t get attracted towards them in haste, and let go of your deductions, especially those deductions that are working for your long-term wealth gain, rather stop for a while and calculate, which is beneficial, going with new low tax rates or opting deductions.

Deductions That Helped You

Well, under Section 80C there are investment schemes where investment up to 1.5 lakh per year is considered as a deduction from your taxable income. The investment schemes within this Section 80 C include your provident fund contributions, life insurance premium and ELSS tax saving mutual funds.

ELSS (Equity Linked Saving Scheme) tax saving mutual funds are not a scheme that is included in your portfolio, only to save tax on your returns, rather it helps you to accumulate good wealth when you remain invested in equity assets for 5-10 years. It is just a way to save tax on returns and invest in long term wealth creation. ELSS comes with a three-year lock-in, which ensures that you remain invested for a fixed period rather than redeeming it for short term expenditures.  

These prominent features of ELSS (Equity Linked Saving Scheme) make it a good bet for obtaining the immediate short-term benefit of tax saving and a long-term benefit of wealth creation.

What Will Happen If You Choose Low Tax Rates and Forgo Deductions?

Well, the best way to understand this situation is through an example. Suppose you earn Rs 10,00,000 per year, as per the new rates for income tax calculation, you will end up with a tax payable of Rs 78,000 without including any deductions and exemptions, whereas, according to the old system, if we include Rs 1,50,000 invested in ELSS as the maximum deduction under Sec 80 C, the only deduction you are claiming, then your tax payable comes to Rs 75,400.

We can conclude that instead of lowering tax rates on income slabs of individuals, they will still pay more tax and not less. Also, if they forego their exemptions and deductions, they will lose the long-term investment option and wealth creation.

Basically, if you are purely dedicated to tax-saving perspective, then going with the new low tax rates on individuals' income is not fit for you, and also there is no profit in forgoing the deduction currently available for investing in funds like ELSS. So, it’s better to opt for deductions and exemptions, through not only you will end up paying less tax, rather you can invest in tax saving mutual fund scheme, ELSS for your long-term financial goals.

You can contact us at Shri Ashutosh Securities Pvt Ltd., for any further detail or information, we are here to help you in any way possible.


Happy Investing!


(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).