New Vs Old Tax Regime: Salaried taxpayers will have to decide at the beginning of the financial year whether they will pay taxes in the old tax structure or in the new regime.
New Vs Old Tax Regime: Taxpayers now have the option of two tax structures – new and old – to choose between the two. In the budget of 2020, the new tax structure was brought with the aim that the government can reduce tax deduction and exemption. Announcing this, Finance Minister Nirmala Sitharaman had said that taxpayers are getting more than 10 types of tax exemptions and the new tax structure will be such that 70 exemption will be removed, but will be taxed at a lower rate.
If you do not mind much with all the exemptions like section 80C, 80D, HRA, home loan interest, ie if you do not have a home loan, nor do you make any tax savings, then the new tax regime is right for you. Income tax will have to be paid according to the slab on the earnings.
New and old tax rate
| Income slab | Old regime | New regime |
|
Up to 2.5 lakh rupees |
Nil | Nil |
| 2.5 to 5 lakh rupees
|
5% | 5% |
|
5 to 7.5 lakh rupees |
20% | 10% |
| 7.5 to 10 lakh rupees
|
20% | 15% |
| 10 to 12.5 lakh rupees
|
30% | 20% |
| 12.5 to 15 lakhs rupees
|
30% | 25% |
| Above 15 lakh rupees
|
30% | 30% |
Tax Regime: What exemption will continue to be available in the new regime?
In the new regime, there will not be any exemption for Standard Deduction, Chapter VI A of Income Tax i.e. 80C deduction – insurance premium, tuition fees, home loan principal payment and health insurance. However, some discounts that will be available in the new regime are –
– Contribution of amplifier in NPS under section 80CCD (2)
– Gratuity up to 20 lakh rupees
– Insurance maturity under section 10 (10D)
– PPF and Sukanya Samriddhi Scheme maturity money
– Interest of up to Rs 3,500 for select post office scheme
How to choose tax regime?
If you do not understand which tax system is right for you, then you can check the income tax website https://www.incometaxindiaefiling.gov.in by calculating tax by giving details of your earnings and rebate through the tax calculator. According to tax expert Gauri Chadha, if you enjoy more deduction, then the old regime will be beneficial and if you take less deduction then there is an advantage in the new regime. Suppose the annual income is Rs 15 lakh and if you take a standard deduction of only 50,000, then the taxable income will be Rs 14,50,000 – Under the old tax regime, tax of Rs 2,57,400 will be levied and if the new regime is taxed, you will have to pay tax of Rs 1,95,000. There is a difference of 62,400 rupees between new and old tax.
Tax calculation
| Low deduction | Medium deduction | High deduction | Very high deduction |
| Gross income | 1500000 | 1500000 | 1500000 | 1500000 |
| Net income | 145000 | 1300000 | 1100000 | 890000 |
| Profit / loss | 62400 | 15600 | -46800 | -80080 |
| Old tax regime | 2,57,400 | 210000 | 148200 | 114920 |
| New tax regime | 195000 | 195000 | 195000 | 195000 |
Salaried taxpayers must decide at the beginning of the financial year whether they will pay taxes in the old tax structure or new ones. However, while filing the return, if they feel that the tax regime they have chosen is not saving tax, then they can also switch. The option can be changed every year if desired.
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