Guide to Choose between Old Vs New Tax Regime
What are the tax rates in Old and New tax Regime?
Income Tax Slabs Old Rates New rates
0-₹2.5 lakh NIL NIL
₹2.5 lakh-₹5 lakh 5% 5%
₹5 lakh-₹7.5 lakh 20% 10%
₹7.5 lakh-₹10 lakh 20% 15%
₹10 lakh-₹12.5 lakh 30% 20%
₹12.5 lakh-₹15 lakh 30% 25%
₹ 15lakh and above 30% 30%
What are exemptions not available under New tax rates?
Some of the 70 exemptions and deductions you won’t get in a new regime.
· House rent allowance: Depends on salary structure and rent paid
· Standard Deduction: ₹ 50,000
· Housing loan interest: ₹ 3.5 lakh for affordable housing, ₹ 2 lakh for others
· Investments under Sec 80C: ₹ 1.5 lakh
· Leave travel allowance: Tax-free if claimed once in a block of two years
· NPS contribution: ₹ 50,000
· Medical insurance premium: ₹ 25,000 (₹ 50,000 for parents and senior citizens)
· Savings bank interest: ₹ 10,000 under Sec 80TTA
· Interest income (for senior citizens): ₹ 50,000 under Sec 80TTB
· Education loan interest: Interest paid for eight consecutive years
· Disability of self or dependant: ₹ 75,000 to ₹ 1.25 lakh depending on the disability
· Treatment of self or dependant for specified disease: ₹ 40,000 (₹ 1 lakh for senior citizens)
· Donations to specified entities: 50-100% of the amount donated
However, deduction under sub-section (2) of section 80CCD (employer contribution on account of the employee in a notified pension scheme—mostly NPS) and section 80JJAA (for new employment) can still be claimed
What Tax Regime suits you the most?
Out of all the exemptions that have been removed, check how many are applicable for you and how much money you can save by opting for those.
On the comparative calculations, taxpayers are allowed to choose between old or new tax regimes and have the option to switch from the old tax regimes to a new tax regime or vice versa. However, the option to switch is not available for business taxpayers.
Apart from tax, the factors like age, lifestyle, priorities of life are also important factors to decide which tax regime suits you the most. If you are young it is better to start saving early and by investing early one can achieve financial goals.
CBDT circular issued in April 2020 has directed employers to obtain a declaration from employees if they wish to opt for the new tax regime. However, employees can still continue to have the right to choose between the tax regimes at the time of filing the return.
Grover S & Company