Confused between the Old & New Income Tax regime?
The Union Budget 2020 proposed new tax rates that could offer lower tax rates to individual taxpayers. However, there are conditions that we need to be aware of.
Before we get into which regime to opt for, let's review and compare both the tax slabs:
Income Tax rates under new v/s old tax regime for income up to 20 Lakhs:
Plus Surcharge on the amount of Income Tax payable if Income exceeds Rs. 50 Lakhs. i.e.
- Net income exceeds Rs.50 Lakhs but doesn’t exceed Rs. 1 Crore - 10%
- Net income exceeds Rs.1 Crore but doesn’t exceed Rs 2 crore - 15%
- Net income exceeds Rs.2 Crore but doesn’t exceed Rs 5 crore - 25%
- Net income exceeds Rs.5 Crore - 37%
Now the question is, which regime is best? Old or New?
Though, the New Tax slabs lower income-tax rates. The proposed lower tax rates will be applicable only if we are willing to give up exemptions and deductions available under various provisions of the Income-tax Act, 1961. (There are 70+ such exemptions and deductions that we have to give up if opted for new tax regime.)
Which means that when we opt the New Tax Regime, we will have to forgo some exemptions including the mostly used exemptions such as "Leave Travel Allowance (LTA), House Rent Allowance (HRA), and deductions available under chapter VI A of the IT Act under Section 80 [such as 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG, 80GGA, 80GGC, etc].
Also, the Standard Deduction under Section 16 of Rs. 50000 available to salaried individuals and the deduction on home loan interest, under Section 24(b) will be disallowed which is really painful. However, the deduction under Section 80CCD(2) [i.e. employer’s contribution of NPS] is allowed for salaried individuals.
So, considering new tax rates without exemptions and deductions, if the gross income is Rs 10 lakh or above and if we are utilizing available deductions under Section 80C, 80D, and 24(b), we are better under the older regime which works in our favor from a tax planning standpoint. While for individuals in the middle-income group, earning a gross income of say Rs 5 lakh the new regime may prove advantageous.
If you are still confused between what to opt for, identify your exemptions, deductions that you may get and use below calculator to make a wise decision.
Once you identify which regime is advantageous to you, let your employer know which tax regime you would opt for in the upcoming FY (Financial Year):
https://www.incometaxindiaefiling.gov.in/Tax_Calculator/
Cheers,
Chethan Kumar