Old Tax Regime or New?

Sanchit was on his desk, analyzing currency Exchange rate graphs when the phone started ringing. He picked up to hear Ruhi's voice.

?? (Ruhi) : Hey, how are you? I need your help settling a dispute.

?? (Sanchit) :?Hi Ruhi, I am doing great. Please tell me, how can I help?

?? : Well, Vibhu and I were talking about filing tax returns. She feels that the new tax regime will be more beneficial, while I think we should continue with the current regime. Would you be able to share your insights?

??:?I am happy to help. Under the existing (old) regime, you are taxed at prevailing slab rates, with several deductions and exemptions (check here). It provides benefits for investments, insurance, travel, education, rent, etc.

???? (Vibhu): Hey, isn't it true that we have lower tax slabs under the new regime?

??:?I am coming to that. As a part of Budget 2020, the Government rolled out a?new tax regime?to simplify taxes. You are correct in saying that overall tax slabs have been reduced (up to an Income of 15 lakhs) under Section 115BAC.

However, several exemptions and deductions are not applicable in the new regime. Some examples include:

• Section 10: Clause (5) - LTA (govt employees), (13A)- HRA, (14) - special allowance (other than perquisite)
• Section 16 - Standard Deduction of Rs. 50,000 from salary and Professional tax) or
• Section 24(b)?- Deduction of interest on home loan for a self-occupied property or
• Business related - section 32(1)(iia),?32AD, 33AB,?33ABA, 10AA?and certain provisions of?section 35?or?section 35AD?or?section 35CCC?or
• Section 57(iia)?- deduction (1/3 or 15,000) from family pension or
• under any of the provisions of Chapter VI-A (80C to 80U) other than Section 80CCD(2) (NPS)?or?section 80JJAA;

The switch to the new tax regime is not compulsory. You have an option to choose the more beneficial alternative. Such a choice would be motivated by your income level & structure and intended investments & insurance. If you want the freedom to utilize your money however you see fit, the new regime may offer additional advantages. Since Chapter VI-A deductions are unavailable, there is no obligation to buy Insurance or invest in tax-saving schemes (ELSS).

You can check your tax liability under both regimes on the Income tax Website by switching the option in response to 'Whether opting for taxation under Section?115BAC?' (Yes means new regime).

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Till next week,

Happy Wealth Creation ??

Disclaimer: Educational content, not financial/taxation advice. Please consult your financial advisor/tax consultant before deciding based on this content.