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- The New Tax Regime
- New Income Tax vs Old Income Tax
- Here is the new income tax slab vs old income tax slab-
- A person with an annual income of Rs. 7,50,000 -
- A person with an annual income of Rs. 10,00,000
- A person earning an annual income of Rs. 10,00,000 and files for exemption-
- Exemptions and Deductions That Are Not Allowed
- Exemptions and Deductions That Are Allowed in the New Tax Regime
- Old Tax Regime or New Tax Regime- Which is More Beneficial?
A new tax regime with reduced income tax rates was introduced in the Budget 2020 . However, the reduction in rates was only for those who would forego their exemptions. People who wish to include the exemptions can stick to the old tax regime. Meanwhile, the Govt has kept cess and surcharge the same.
The New Tax Regime
Introduced in the Budget 2020, the new tax regime lowers the tax rates for most tax slabs. However, people who want to opt for this regime will have to forgo most of the exemptions and deductions.Here are the tax rates under the new tax regime-
- No tax below Rs. 2.5 Lakhs.
- No tax below Rs. 5 Lakhs.
- 10% tax- Rs. 5 Lakhs to Rs. 7.5 Lakhs per annum.
- 15% tax- Rs. 7.5 Lakhs to Rs. 10 Lakhs per annum.
- 20% tax- Rs. 10 Lakhs to Rs. 12.5 Lakhs per annum.
- 25% tax- Rs. 12.5 Lakhs to Rs. 15 Lakhs per annum.
- 30% tax- Rs. 15 Lakhs and above.
New Income Tax vs Old Income Tax
The new tax regime is beneficial for people who want to pay tax at lower rates. However, people who opt for the old regime can lower their income tax liability by claiming tax deductions and exemptions.
Here is a comparison between old tax regime and new tax regime-
Here is the new income tax slab vs old income tax slab-
| Tax Slab | Old Tax Regime | New Tax Regime |
| Up to Rs. 2,50,000 | Nil | Nil |
| From Rs. 2,50,000 - 5,00,000 | 5% | 5% |
| From Rs. 5,00,000 - 7,50,000 | 20% | 10% |
| From Rs. 7,50,000 - 10,00,000 | 20% | 15% |
| From Rs. 10,00,000 - 12,50,000 | 30% | 20% |
| From Rs. 12,50,000 - 15,00,000 | 30% | 25% |
| Above Rs. 15,00,000 | 30% | 30% |
Read also : Income Below Taxable Limit? Here is What You Should Do In the old as well as the new regime, age was classified in 3 different categories. However, the exemption limit is different in both the regimes-
| Age | New Regime Exemption Limit | Old Regime Exemption Limit |
| People Below 60 Years of Age | Rs. 2,50,000 | Rs. 2,50,000 |
| People Between 60 to 80 Years of Age | Rs. 2,50,000 | Rs. 3,00,000 |
| People Above 80 Years of Age | Rs. 2,50,000 | Rs. 5,00,000 |
If people between 60 to 80 years of age and people above 80 years of age pick the new regime, then they will have to pay tax as per the new tax exemption limit.Here are some examples of how much tax a person must pay in the old and new regime without any exemptions for the same salary.
A person with an annual income of Rs. 7,50,000 -
| Salary | Old Regime Tax Rate | Old Regime Tax Amount | New Regime Tax rate | New Regime Tax Amount |
| Up to Rs. 2,50,000 | 0% | 0 | 0% | 0 |
| From Rs. 2,50,000 - 5,00,000 | 5% | Rs. 12,500 | 5% | Rs. 12,500 |
| From Rs. 5,00,000 - 7,50,000 | 20% | Rs. 50,000 | 10% | Rs. 25,000 |
| Total Tax |
| Rs. 62,500 |
| Rs. 37,500 |
| Cess | 4% | Rs. 2,500 | 4% | Rs. 1,500 |
| Annual tax payable |
| Rs. 65,000 |
| Rs. 39,000 |
However, if the person earning Rs. 7,50,000 files for some exemptions, the tax amount will change accordingly-
| Deduction | Deduction Amount | Old Regime Tax Amount with Exemptions | New Regime Tax Amount |
| Standard Deduction | Rs. 50,000 |
|
|
| Section 80C Deduction | Rs.1,50,000 |
|
|
| Section 80D Deduction | Rs. 20,000 |
|
|
| Net Taxable Amount |
| Rs. 5,30,000 | Rs. 7,50,000 |
| Total Tax |
| Rs. 18,500 | Rs. 37,500 |
| Cess 4% |
| Rs. 740 | Rs. 1,500 |
| Net Tax Payable (annually) |
| Rs.19,240 | Rs. 39,000 |
A person with an annual income of Rs. 10,00,000
| Salary | Old Regime Tax Rate | Old Regime Tax Amount | New Regime Tax rate | New Regime Tax Amount |
| Up to Rs. 2,50,000 | 0% | 0 | 0% | 0 |
| Rs. 2,50,000 to Rs. 5,00,000 | 5% | Rs. 12,500 | 5% | Rs. 12,500 |
| Rs. 5,00,000 to Rs. 7,50,000 | 20% | Rs. 50,000 | 10% | Rs. 25,000 |
| Rs. 7,50,000 to Rs. 10,00,000 | 20% | Rs. 50,000 | 15% | Rs. 37,500 |
| Total Tax |
| Rs. 1,12,500 |
| Rs. 75,000 |
| Cess | 4% | Rs. 4,500 | 4% | Rs. 3,000 |
| Annual Tax Payable |
| Rs. 1,17,000 |
| Rs. 78,000 |
Read also : Section 10 Of The Income Tax Act: All Exemptions Covered
A person earning an annual income of Rs. 10,00,000 and files for exemption-
| Deduction | Deduction Amount | Old Regime Tax Amount with Exemptions | New Regime Tax Amount |
| Standard Deduction | Rs. 50,000 |
|
|
| Section 80C Deduction | Rs.1,50,000 |
|
|
| Section 80D Deduction | Rs. 20,000 |
|
|
| Net Taxable Amount |
| Rs. 7,80,000 | Rs. 10,00,000 |
| Total Tax |
| Rs. 68,500 | Rs. 75,000 |
| Cess 4% |
| Rs. 2,740 | Rs. 3000 |
| Net Tax Payable (annually) |
| Rs. 71,240 | Rs. 78,000 |
The taxpayer can pick between the old regime and the new regime, as per the convenience and benefit received. However, people filing for multiple deductions might not find the new tax regime beneficial to them as they have to pay more tax. It is important for every person to know which indirect tax slab rates will help them save money.
Exemptions and Deductions That Are Not Allowed
While a taxpayer can pay tax at lower rates, he/she can’t avail most exemptions and deductions if he/she chooses the new tax regime.Here are a few exemptions and deductions that aren’t allowed in the new tax regime-
- House Rent Allowance
- Leave Travel Allowance
- Standard Deduction of Rs. 50,000
- Deduction of Rs. 15,000 for family pension under Clause (iia) Section 57
- Deductions under Section 80C, 80TTA/TTB, 80DDB, 80CCC, 80G, 80EE, 80EEA, 80EEB, 80D, etc.
Exemptions and Deductions That Are Allowed in the New Tax Regime
If a person chooses the new tax regime, then he/she can avail these exemptions and deductions. Here are some of them-
- VRS proceeds up to Rs. 5 Lakhs
- Leave encashment received on retirement
- Standard deduction on rent
- Income received from life insurance
- Retrenchment compensation
Old Tax Regime or New Tax Regime- Which is More Beneficial?
The choice between both regimes depends on the taxpayer. In case a taxpayer doesn’t have many exemptions and deductions to claim, then he/she can consider paying taxes as per the new tax regime. It can help him/her save on taxes. However, if a taxpayer wants to claim a lot of exemptions and deductions, then the old regime can be beneficial.Ready to make the most of your money? Start your tax planning journey now!
DISCLAIMER
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
