Income tax regime: Taxpayers get many exemptions like section 80C, section 80D when choosing the old tax regime. Tax exemption is available in the house rent allowance, LTC cash voucher scheme.
From FY 2020-21, taxpayers have two options to choose an income tax regime. You can choose one of these options for the financial year. The existing income tax system i.e. the old system and the other option is the new income tax system. Taxpayers get many exemptions like section 80C, section 80D when choosing an old tax regime. Tax exemption is available in the house rent allowance, LTC cash voucher scheme. At the same time, the slab rates have been kept low in the new system of income tax.
The highest tax in the new income tax regime is 30 percent. This rate starts with an income of Rs 15,00,001. At the same time, according to the old system, it starts from an annual salary of Rs 10,00,001. That means 30 per cent tax on earnings above 10 lakh.
Tax rate and slab of new system of income tax
| Tax slab | Tax rate |
| Upto Rs 2,50,000 | Zero |
| 2,50,001 to Rs.5,00,000 | 5% |
| 5,00,001 to Rs 7,50,000 | 10% |
| 7,50,001 to 10,00,000 rupees | 15% |
| 10,00,001 to 12,50,000 rupees | 20% |
| 12,50,001 to Rs. 15,00,000 | 25% |
| Above Rs. 15,00,000 | 30% |
Additional exemption will not be available In the
new income tax system, taxpayers will not get the benefit of deduction on investment in Employees Provident Fund (EPF), Public Provident Fund (PPF) or tax exemption on Kira S or food coupons. In the new system of income tax, only one deduction is available. That is the deduction of the contribution to the NPS Tier-1 account on behalf of the institute under section 80CCD (2). NPS account has been kept in the new system of income tax.
Which tax system is good for you?
If you are claiming more than 2.5 lakh rupees in a financial year, then going to a new tax structure will not help. According to income tax rules, such taxpayers can choose any one of the new or old structures every financial year as salary earners and pensioners who do not have business income. But, if a person has a business income and has chosen a new tax structure in FY 2020-21, then that taxpayer will have to continue the new tax structure of income tax even further. Such taxpayers do not have the option to change the tax structure every financial year. People with business income can switch back to the old tax structure only once in life. Once this is done, then the person will not be able to adopt the new structure of income tax again.
Even if you remain in an option, you will not have to pay tax, know how
if the income of a person does not exceed Rs 5 lakh in both the arrangements of income tax, then a rebate of Rs 12,500 is available for him. In this way, if a person chooses any system of income tax, if the income of the person does not exceed 5 lakh rupees, then he will not have to pay tax.
Exemption up to Rs 2.5 lakhs Only
, the increased basic exemption limit is not available for Senior Citizens and Super Senior Citizens in the new system of income tax. A basic exemption limit of Rs 2.5 lakh is applicable for all types of individuals in a financial year. In a financial year, if one of the employees chooses the system of income tax, then during the year, he cannot change it. However, while filing income tax return, he will have the option to switch from one tax system to another. Then he has given any option to his company about it.
