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New Tax Regime Slabs, Rates, Exemptions & Deductions Availability analysis
New income tax regime for Individuals and HUF has been proposed under Section 115BAC in the budget 2020. This scheme provides an option to the taxpayers to pay tax at reduced rates subject to fulfillment of certain conditions. This new system is applicable from the FY 2020-21(AY 2021-22).
Let’s understand this proposed scheme in detail-
As per Budget 2020 individual and HUF taxpayers including are provided a choice to pay income tax under an optional new tax regime. The new tax regime came up with lower tax rates and fewer deductions.
Let us discuss further the changes made in the new tax regime and how you can benefit from them:-
Taxable Income for FY 2022-23 | Tax Rate under new regime | Tax Payable | Tax Rate under old regime | Tax Payable |
---|---|---|---|---|
Upto 2,50,000 | Exempt | - | Exempt | - |
From 2,50,001- 5,00,000 | 5% | 12,500 | 5% | 12,500 |
From 5,00,001-7,50,000 | 10% | 25,000 | 20% | 50,000 |
From 7,50,001-10,00,000 | 15% | 37,500 | 20% | 50,000 |
From 10,00,001-12,50,000 | 20% | 50,000 | 30% | 75,000 |
From 12,50,001-15,00,000 | 25% | 62,500 | 30% | 75,000 |
Above Rs 15 Lakhs | 30% | To be calculated on the basis of income | 30% | To be calculated on the basis of income |
The introduction of new tax regime made people more confused on which tax regime to opt for. Let us give you more clear picture on this.
The basic exemption limit has still been kept unchanged i.e. there will be no tax upto Rs 2.5lakhs for an individual/HUF. But, if the income of such taxpayer does not exceed Rs 5 lakhs then no tax would be payable after availing the benefit of rebate u/s 87A.
As soon as your taxable income crosses the threshold of Rs 5 lakhs the benefit u/s 87A will not be available and tax would be payable at 5% for income above Rs 2.5 lakhs but up to Rs 5 lakhs. Let us understand this with the help of an example
Particulars | Old Regime | Old Regime | New Regime | New Regime |
---|---|---|---|---|
Taxable Income | 5,00,000 | 6,00,000 | 5,00,000 | 6,00,000 |
Less: Basic Exemption Limit | 2,50,000 | 2,50,000 | 2,50,000 | 2,50,000 |
Taxable income after basic exemption limit | 2,50,000 | 3,50,000 | 2,50,000 | 3,50,000 |
Tax Rate | @5% on Rs 2,50,000 | @5% on Rs 2,50,000 + @20% on Rs 1,00,000 | @5% on Rs 2,50,000 | @5% on Rs 2,50,000 + @10% on Rs 1,00,000 |
Tax Computed | 12,500 | 32,500 | 12,500 | 22,500 |
Less: Rebate u/s 87A | 12,500 | - | 12,500 | - |
Tax Payable* | - | 32,500 | - | 22,500 |
*The above calculations are excluding cess.
Every year at the time of return filing, the new tax regime can be opted by the individual or the HUF who has no business/professional income They do not have a choice to opt-in or opt out of the regime every year. The option shall become invalid for a previous year or previous years, as the case may be, if the Individual or HUF fails to satisfy the conditions and other applicable provisions of the Act.
However, if the non-salaried taxpayer opts out of the new regime, he cannot opt for this regime in the future. Taxpayers having business income and wanting to opt for a new tax regime have to communicate to the Income tax department by filing from-10IE before the due date of filing ITR. This option once exercised for a previous year shall be valid for that previous year and all subsequent years.
The taxpayer opting for the new tax regime under section 115BAC shall not be entitled to the following exemptions/ deductions:
Following exemptions and allowances are allowed to the Individual or HUF :
For the FY 2020-212022-23 (AY 2023-24) the taxpayer can choose amongst the old and new tax regimes. The new optional tax regime has reduced the income tax rate however has removed a few of the deductions and allowances that were available under the old tax regime. Let’s get a comparative study of the pros and cons of both tax slabs available to the taxpayer
OPTION I: OLD TAX SLABS | OPTION II: NEW TAX REGIME | |
---|---|---|
Applicability | Applicable to Individual, HUF, AOP, BOI, AJP | Individual & HUF |
Chapter VI A Deductions | Available | Not available except 80CCD(2), 80JJAA, |
Allowances, and Exemptions | Available | Ony few available |
Suitable for | Taxpayers who are willing to take benefit of allowances like HRA, LTA, etc and have contributions to PPF, LIC, PF, Home Loan repayment, donations, medical policies, NPS and other eligible tax saving instruments etc | Those who do not have tax-saving investments / exemptions and are not willing to make the same anytime sooner. Normally more suitable for New employees, low tax bracket earners or senior citizens willing to have greater liquidity in hand at the old age. |
Rebate u/s 87A | Available | Available |
Health & Education Cess | 4% | 4% |
Surcharge | Applicable | Applicable at same rates |
Basic Exemption Limit | The basic exemption limit under the old scheme were Rs 2,50,000 for those aged less than 60 years Rs 3,00,000 for senior citizens Rs 5,00,000 for super senior citizens | Under the new tax regime there is only one exemption limit of Rs 2,50,000 which is applicable for both individuals and HUF |
Your tax outflow will be effected in a below-depicted manner under the new tax structure. For calculations, taxable income has been taken after all the deductions and allowances allowed (if any)
Taxable Income for FY 2022-23 | Tax Rate under new regime | Tax Payable | Tax Rate under old regime | Tax Payable |
---|---|---|---|---|
Upto 2,50,000 | Exempt | - | Exempt | - |
From 2,50,001- 5,00,000 | 5% | 12,500 | 5% | 12,500 |
From 5,00,001-7,50,000 | 10% | 25,000 | 20% | 50,000 |
From 7,50,001-10,00,000 | 15% | 37,500 | 20% | 50,000 |
From 10,00,001-12,50,000 | 20% | 50,000 | 30% | 75,000 |
From 12,50,001-15,00,000 | 25% | 62,500 | 30% | 75,000 |
Above Rs 15 Lakhs | 30% | To be calculated on the basis of income | 30% | To be calculated on the basis of income |
An Person individual having business income can opt to pay tax as per the new tax slab structure if
The new tax regime is different to the old one in two aspects- lower tax rate, removed tax deductions. To opt for the best, you should first calculated all your exemptions and deductions and minus them from your salary. Now check what is your taxable income iif you let go these deduction or allowances. Here is the deciding factor.
Further you can also seek help of our Tax Palnning Optimizer tool that gives you recommendations basis on your input and let you decide on what regime will be the best for you.
The decision to make the choice between new and old regime is before filing the income tax return of the relevant financial year.
No, the new tax regime has not provided many of the deductions and exemptions that were provided in old regime.
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