The Government of India introduced a new tax regime in FY 2020 – 2021. Under the new tax regimes, the tax rates were significantly reduced. However, for many individuals, the old tax regime is more beneficial. If you want to know which tax regime you should opt for, you must know the key differences between old and new tax regimes.
Here’s a detailed comparative analysis of the old vs new tax regime. Read on!
Under the old regime, taxpayers falling under the income bracket of Rs. 5 lakh – Rs. 10 lakh had to pay 20% tax. As per the new regime, such individuals will now be taxed at half the rate, i.e., 10%. In addition, those individuals with an annual income of Rs. 7.5 lakh – Rs. 10 lakh will be taxed at 15%.
|Income Tax Slab||New Regime||Old Regime|
|Up to Rs. 2.5 lakh||Nil||Nil|
|Rs. 2.5 lakh to Rs. 5 lakh||5%||5%|
|Rs. 5 lakh to Rs. 7.5 lakh||10%||20%|
|Rs. 7.5 lakh to Rs. 10 lakh||15%||20%|
|Rs. 10 lakh to Rs. 12.5 lakh||20%||30%|
|Rs. 12.5 lakh to Rs. 15 lakh||25%||30%|
|More than Rs. 15 lakh||30%||30%|
This table shows the applicable tax rates for individuals aged 60 years or less and HUFs (Hindu Undivided Families). For senior citizens falling between the age group of 60 and 80 years, there is a basic tax exemption of Rs. 3 lakh. Moreover, for super senior citizens over the age of 80, the basic exemption is Rs. 5 lakh.
Therefore, the applicable tax rate for senior citizens and super senior citizens is nil for annual incomes of Rs. 3 lakh and Rs. 5 lakh, respectively.
Also Read- How To Save Income Tax On Salary?
The applicable tax for individuals is further increased by surcharge and a 4% health and education cess, as mentioned below:
|Income||Surcharge Rate as % of Tax Rate|
|Less than Rs. 50 lakh||0%|
|Rs. 50 lakh to Rs. 1 crore||10%|
|Rs. 1 crore to Rs. 2 crore||15%|
|Rs. 2 crores to Rs. 5 crore||25%|
|More than Rs. 5 crore||37%|
An additional health and education cess is levied at a 4% rate over the total payable tax and surcharge.
A few tax deductions/exemptions are now allowed in the new tax regime. Find them below:
Note that you can still claim tax deduction under the new regime under Section 80CCD subsection 2. This section provides deductions for Individuals against any contributions made towards NPS. However, if your annual contribution towards EPF and NPS is more than Rs. 7.5 lakh, you will be eligible for taxation.
While introducing this tax regime, India’s finance minister was inclined toward removing most tax benefits and bringing down the tax rates to ease out tax compliances. However, several tax benefits are still available under the new tax regime. Find them below:
The Government of India has taken several measures to implement a simpler tax regime in the country. To ensure that you are making the correct decisions, a complete understanding of the old vs new tax regime is paramount. Depending on your yearly earnings, TDS and tax-saving instruments, choose either the old or new tax regime that’s most beneficial for you.
Ans: The applicable deductions and income quantum differ from individual to individual. So, taxpayers should calculate their liability under both these tax regimes by themselves. Upon a thorough comparison, they might arrive at a regime that best suits them.
Ans: As per protocol, you need to inform your employer about the tax regime you decide to go with at the beginning of the financial year. However, if you wish to switch to the old tax regime in the middle of a financial year, you can do so while filing your income tax returns. Note that you cannot shift to another tax regime before filing ITR.
Ans: Yes, as per the Finance Bill of 2020, pensioners and individuals with no business income are eligible to switch between tax regimes every assessment year, depending upon their financial condition.
However, individuals who have business income, including freelancers, have the option to opt for the old regime only once in their life if they had chosen the new tax regime during the current assessment year.
Ans: House Rent Allowance (HRA) is a part of your salary. However, it is not fully taxable as your salary. After certain considerations, HRA is exempted from tax under Section 10 (13A) of the Income Tax Act. However, if you choose the new tax regime, you will not be able to claim an exemption of tax on HRA.
Ans: Leave Travel Allowance (LTA) is provided to an employee by the employer granting leave to employees while bearing their travel expenses. Employees can get an LTA tax exemption under Section 10 (5) of the Income Tax Act. However, under the new tax regime, this exemption is waived off.
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