Making the Right Choice between New Tax Regime Vs. Old Tax Regime



Quick Summary
The Indian tax system offers two regimes: the old and the new. The new tax regime, introduced in FY 2020-21, features lower tax slab rates but significantly fewer exemptions and deductions. The old regime retains more deductions and exemptions, such as those under Section 80C and HRA. Your choice depends on the deductions and exemptions you plan to claim.

The concept of OLD Vs New Tax regime = a dual tax regime was introduced by Finance Act- 2020 for FY 2020-21.

For FY 2020-21 corresponding to AY 2021-22, there is a Dual Tax regime as discussed in the one of the article shared with you for TAX SAVINGS TIPS.

Old vs New Tax Regime: Which is Right for You

Summary of Points discussed in this Article are as follows

  1. Tax rate Structure
  2. New Tax Regime
  3. Extent of exemptions and deduction
  4. Observation in arriving at a better conclusion

Old Income Tax Regime vs New Tax regime : Which one you will opt for FY 2020-21?

TO SOLVE your above problems 1st of All we have to know the difference between the old tax regime & new tax regime in order to evaluate your right Choice.

1) Tax rate Structure

Only 3 Tax slab rates of 5%, 20% & 30% vs 6 slab rates of tax under the NEW tax regime.

 

Tabulated Below

Income Slabs

Old Tax Regime (%)

New Tax Regime (%)

Up to Rs. 2.50 Lakh

0

0

Rs. 2.50 Lakh to Rs. 5 Lakh

5

5

Rs. 5 Lakh to Rs. 7.50 Lakh

20

10

Rs. 7.50 Lakh to Rs. 10 Lakh

20

15

Rs. 10 Lakh to Rs. 12.50 Lakh

30

20

Rs. 12.50 Lakh to Rs. 15 Lakh

30

25

Above Rs. 15 Lakh

30

30

Analysis

Under NEW TAX regime, TAX is payable @ lower slab rates on the income up to Rs.15 lakh as compared to old regime. Tax slabs rates of 5%, 10%, 15%, 20% ,25% and 30% are applicable on each successive increase of Rs. 2.50 lakh starting from the basic exemption of Rs. 2.5 lakh till Rs.15 lakhs of total income.

2) New Tax Regime (Optional Scheme)

  1. This option is available to all Individuals and
  2. Taxpayers are given a free entry & exit option & flexibility to make the choice for better tax
 

3. Extent of exemptions and deduction available with the taxpayers under OLD vs new

Not all deduction is not available under new Tax regime.

There are certain which are also available in new Tax regime which are tabulated below

Particulars

Old Tax Regime

New Tax Regime

HRA and LTA exemption u/s 10

YES

NO

8OC Investments (Provident Fund, PPF, Tax saving FD and MF, etc.)

YES

NO

Medical Insurance premium u/s 80D

YES

NO

Housing loan- Deduction towards Interest & Principle repayment

YES

NO

Standard Deduction on salary and Profession Tax u/s 16

YES

NO

Savings Bank Interest deduction u/s 80TTA (Deduction up to Rs.10,000)

YES

NO

Standard Deduction (30% of the Net Annual Value) u/s 24

YES

YES

Rebate u/s 87A

YES

YES

Benefits of Lower Tax rates

NO

YES

Analysis

If you choose the New Tax Regime, you will have to let go some exemptions (such as Leave Travel Allowance (LTA), House Rent Allowance (HRA), etc) and deductions available under chapter VI A of the Act that grant deductions under Section 80 (such as 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG, 80GGA, 80GGC, etc)

4) Observation in arriving at a better conclusion

To arrive at the better conclusions, taxpayers need to work out the break-even point (BEP) of tax liability under the old regime and the new regime will be the same.

To help above following points of conclusion

  • Taxpayer may NOT take the benefits/deduction/Exemption under section 80C, 80D, HRA and LTA u/s 10 or Housing loan interest as mentioned. In Such scenario, it would always be advisable to opt for the new tax regime as it would entail lower tax burden on them.
  • If the gross income is Rs 10 lakh or above and you are taking the benefits deductions under Section 80C, 80D, and 24(b) of the Income Tax Act, 1961, then you are better off under the old regime; it works in your favour from a tax planning standpoint.
  • Anyone claiming more than Rs 2.5 lakh deduction in a year will NOT gain from the new tax Taxpayers who claim the full deduction under Section 80C would be better off stick to the older tax regime.
  • Employees have the RIGHT TO CHOOSE options at the time of filing the Income tax Keep in mind that each individual will have to evaluate which regime is favorable depending on the deductions and exemptions he plans to claim.
  • Online Income tax calculator is an easy-to-use tool that helps you estimate your taxes based on your income Tax Calculator for Resident Individuals FY 2020-21

Given your link of INCOME TAC CALCULATOR available on Income tax E-filling portal for COMPARING TAX under Old VS NEW regime.
https://www.incometaxindiaefiling.gov.in/Tax_Calculator/

All online Income Tax Calculator available on various portal is only meant to provide a basic idea of the estimated impact of the new provisions. Refer to the Income Tax Provisions for the actual provisions and eligibility.

The author can also be reached at cajayprakashpandcompany@gmail.com

Disclaimer: The purpose of this is to share knowledge and it is for education purpose only. This does NOT constitute NOR does this form part of neither it is to be construed as, A LEGAL OPINION. The analysis is solely based on the reading abilities of the Author. They may be correct/incorrect as per you. No representation or warranty, express or implied, is made or given in respect of any information provided. UNDER NO circumstances should any recipient rely on this communication as a basis for any legal decision. The views expressed are of personal to the author. They do not reflect the views of any organization he may be directly/indirectly associated with. Neither author nor any of its affiliates accepts any legal liability, or responsibility, for, or provides any assurance or guarantee of accuracy, authenticity, completeness, correctness, dependability, reliability, suitability or timeliness of, any part of this article. The contents of this article are based only on the understanding of the Law, Rules, Notifications, etc. of the author and THEY ARE NOT BASIS FOR ANY LEGAL OPINION.


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About the Author

Chartered Accountant in Practice

The author, CA Jayprakash Pandey is a practicing Chartered Accountant (Founder of Jayprakash P Company) having Office at Mumbai, with more than 5 years of professional cum practical experience, Direct Tax, International Taxation, Indirect Tax FEMA related advisory, litigation compliance matters. If you have any q ... Read more

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