New v/s Old Tax Regime Comparison: Which Tax Regime to Pick?

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Income

F.Y. 2019-20
F.Y. 2020-21
Slab option 1
(With Exemptions)
F.Y. 2020-21
Slab option 2
(Without Exemptions)
Income from Salaries
Amount
Amount
Amount
Less: Allowances & Exemptions
Amount
Amount
Amount
Income from Business
Amount
Amount
Amount
Income from House Property
Amount
Amount
Amount
Income from Other Sources
Amount
Amount
Amount

Deductions

F.Y. 2019-20
F.Y. 2020-21
Slab option 1
(With Exemptions)
F.Y. 2020-21
Slab option 2
(Without Exemptions)
Basic Deductions (80C)
Amount
Amount
Amount
Medical Insurance Premium (80D)
Amount
Amount
Amount
Interest from Savings (80TTA)
Amount
Amount
Amount
Other Deductions
Amount
Amount
Amount
Standard Deduction / Allowance
Amount
Amount
Amount

Budget Impact

F.Y. 2019-20
F.Y. 2020-21
Slab option 1
(With Exemptions)
F.Y. 2020-21
Slab option 2
(Without Exemptions)
Basic Tax
Amount
Amount
Amount
Rebate u/s 87a
Amount
Amount
Amount
Surcharge
Amount
Amount
Amount
Education Cess
Amount
Amount
Amount
Total Tax Liability
Amount
Amount
Amount
Impact of Budget 2020 compared to F.Y. 2019-20
Amount/-
Amount/-

What is the New Tax Regime?

A new tax slab has been introduced in Budget 2020 which will be effective from 1 April 2020. This new income tax slab has lower rates of tax for higher incomes. It allows you to lower your tax liability subject to certain conditions and is optional.

If you choose to calculate your taxes using the new tax regime, the specified deductions and exemptions available under the Income Tax Act, 1961 would not be available. Under the old tax regime, however, the deductions and exemptions would be available. Here’s the tax slabs under both the new tax regime and the old one.

Comparison Of Old v/s New Tax Slab Rates
Income Tax Slab for New FY 2020-21 New Tax Rate Existing Tax Rate
Upto Rs 2.5 Lakhs Exempt Exempt
Rs 2.5- Rs 5 Lakhs 5% 5%
Rs 5- Rs 7.5 Lakhs 10% 20%
Rs 7.5 -Rs 10 Lakhs 15% 20%
Rs 10 - Rs 12.5 Lakhs 20% 30%
Rs 12.5 - Rs 15 Lakhs 25% 30%
Above Rs 15 Lakhs 30% 30%

Note: If the net taxable income of a salaried individual is up to INR 5 lakhs, they can enjoy the rebate under Section 87A of the Income Tax Act, 1961. A rebate of INR 12,500 or the actual tax liability, whichever is lower would be allowed thereby making the tax liability zero.


Why has the Government introduced the new tax regime?

The Government has introduced the new tax regime to give taxpayers the option to pay the lowest tax on their incomes. Since the new regime is optional, taxpayers can compare and choose the regime which is more beneficial for them in lowering their tax outgo. The new tax regime has removed approximately 70 out of 100 exemptions to make tax filing simple and easier for taxpayers so that they can calculate their tax liability themselves in an easy manner.

Lower your tax liability with the right slab for your income

Which are the exemptions/deductions unavailable under the new tax regime?

The budget has removed 70 of the available 100 exemptions. The following exemptions and deductions are some of the most important ones which would not be available if the new tax slab is chosen for tax calculation –

  • Standard deduction of INR 50,000 from salary income under Section 16
  • House Rent Allowance under Section 10 (13A)
  • Leave Travel Allowance under Section 10(5)
  • Allowances under Section 10(14)
  • Food coupons and other tax-free allowances and perquisites
  • Deductions under Chapter VI A of the Income Tax Act like Section 80C, 80D, 80TTA, etc.
  • Deduction for home loan interest paid for self-owned house property under Sections 24 (b) and Section 80EEA

For more details pls check here. https://tax2win.in/guide/income-tax-slab-rates-updated


Which are the Exemptions and deductions still available under the new tax regime?

The following deductions and exemptions would be available under the new tax regime –

  • Employer’s contribution to the NPS for up to 10% of your salary under Section 80CCD (2) [ 14% in case of Central Govt employee]
  • Standard deduction of 30% of net rental income if a house property is let out.
  • Home loan interest paid can be deducted from the rental income from a house property. However, loss from the House Property head can not be set off from any other head of income.
  • Transport allowance exemption will be available to divyang employees to meet the day to day travel expenses from the workplace to home.
  • Conveyance allowance will be allowed to meet the expenditure on the conveyance for the purpose of performing the official duty.
  • Allowances granted will be allowed to meet the cost of traveling on tour or on transfer to the employees.
  • Daily allowance granted for day to day ordinary expenses in case of absence from his / her normal place of duty.

Which tax slab is better?

Ever since the new tax regime was proposed, many are debating as to which tax regime is better, the old one with deductions or the new one without them? The answer is relative. One tax regime cannot be universally beneficial for all. Your income, its type, available deductions and exemptions determine which tax regime would give you better tax benefits. You should calculate your tax liability using both the regimes and the regime which gives you the lowest tax liability should be chosen depending on your requirement.

Here are some calculations showing you the tax liability under both the tax slabs for different types of incomes –

Salary Income of INR 12 lakhs for a salaried employee
Particulars Old Regime New Regime
Gross Salary  12,00,000 12,00,000
Less: HRA exemption   2,00,000 NA
Less: LTA exemption     50,000 NA
Less: Standard deduction     50,000 NA
Less: Section 80C deductions   1,50,000 NA
Less: Section 80D deductions for self     25,000 NA
Less: Section 80D deduction  for senior citizen parents     50,000 NA
Less: Other deductions     10,000 NA
Taxable Income   6,65,000 12,00,000
Tax Payable including cess 47,320 1,19,600
Let us understand with another example :
Old Regime New Regime
Gross Salary 12,00,000 12,00,000
Less: Standard deduction     50,000 NA
Less: 80C deductions     50,000 NA
Taxable Income 11,00,000 12,00,000
Tax Payable including cess 1,48,200 1,19,600

So, a salaried employee can benefit from the old tax regime on the basis of availability of exemptions/ deductions to him. In case the taxpayer wants to claim more exemptions/ deductions then he should opt for the old tax regime subject to other conditions.

In the second example, since the exemptions/ deductions available to him were lower as compared to the previous example, it was more beneficial for him in opting for the new tax regime. Further, the decision of suitable tax regime depends on case to case.

Some more examples showing taxability at different income levels:

Salary Income : Rs.5,00,000

Old Regime New Regime
Gross Income
500,000 500,000
Less : Std. Ded. 50,000 -

80C,80D, etc. Zero -

HRA Zero -

LTA Zero -
Net Taxable Income
450,000 500,000
Tax
- -

Note: There is NO impact on tax payments because of rebate u/s 87A.

Salary Income : Rs.8,00,000

Old Regime New Regime
Gross Income
800,000 800,000
Less : Std. Ded. 50,000 -

80C,80D, etc. 150,000 -

HRA 50,000 -

LTA Zero -
Net Taxable Income
550,000 800,000
Tax
23,400 46,800
Old Tax Regime saves more tax.

Salary Income : Rs.15,00,000

Old Regime New Regime
Gross Income
1,500,000 1,500,000
Less : Std. Ded. 50,000 -

80C,80D, etc. 150,000 -

HRA 75,000 -

LTA 20,000 -
Net Taxable Income
1,205,000 1,500,000
Tax
180,960 195,000
Old Tax Regime saves more tax.

Salary Income : Rs.20,00,000

Old Regime New Regime
Gross Income
2,000,000 2,000,000
Less : Std. Ded. 50,000 -

80C,80D, etc. 150,000 -

HRA 75,000 -

LTA 20,000 -
Net Taxable Income
1,705,000 2,000,000
Tax
336,960 351,000
Old Tax Regime saves more tax.
Income or deduction


Worried??
Your Income or deduction slabs are not covered in the computations shown above?
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Use this free calculator.
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Is there a situation of paying the same tax under both tax regimes?

Let's get a brief over some of the indifference points between old and new tax regime:

Gross Income Deductions and exemptions including Standard deduction Tax under old tax regime* Tax under new tax regime*
INR 8,00,000 INR 1,38,000 INR 47,000 INR 47,000
INR 10,00,000 INR 1,88,000 INR 78,000 INR 78,000
INR 12,00,000 INR 1,91,000 INR 1,20,000 INR 1,20,000
INR 15,00,000 INR 2,50,000 INR 1,95,000 INR 1,95,000
Gross Annual Income Deductions and exemptions including Standard deduction Existing tax* New tax* Difference
Rs. 5 lakh - 0 0 -
Rs. 6 lakh Rs. 50,000 23,400 23,400 -
Rs. 7 lakh Rs. 1 lakh 33,800 33,800 -
Rs. 8 lakh Rs. 1.38 lakh 46,800 46,800 -
Rs. 9 lakh Rs. 1.62 lakh 62,400 62,400 -
Rs. 10 lakh Rs. 1.87 lakh 78,000 78,000 -
Rs. 12 lakh Rs. 1.91 lakh 119,600 119,600 -
Rs. 14 lakh Rs. 2.33 lakh 169,000 169,000 -
Rs. 15 lakh Rs. 2.50 lakh 195,000 195,000 -
Rs. 16 lakh Rs. 2.50 lakh 226,200 226,200 -
Rs. 18 lakh Rs. 2.50 lakh 288,600 288,600 -
Rs. 20 lakh Rs. 2.50 lakh 351,000 351,000 -

*Tax amount has been rounded off to the nearest thousands.

In the cases mentioned above, the taxpayer will be indifferent to both the schemes. Both the schemes will result in approximately the same amount of tax.
Besides the introduction of the new tax slab, few other relevant changes are given below which may also impact the tax liability of the taxpayer –

  • Dividend taxable in the hands of the receiver As per the new rules, Dividend Distribution Tax payable by companies has been removed. Instead, the dividend would be charged in the hands of the investor. Therefore, Dividend is taxable in the hands of the receiver now.
  • Extension of time limit for Section 80EEA The existing provisions of section 80EEA of the Act provide for a deduction in respect of interest on loan taken from any financial institution for acquisition of an affordable residential house property. The deduction allowed is up to one lakh fifty thousand rupees and is subject to certain conditions. One of the conditions is that loan has been sanctioned by the financial institution during the period from 1st April, 2019 to 31st March, 2020. In order to continue promoting purchase of affordable housing, the period of sanctioning of loan by the financial institution is proposed to be extended to 31st March, 2021.

What are the benefits or disadvantages of opting both the tax regimes?

The various benefits or disadvantages of old and new tax regime include

Benefits Disadvantages
OLD TAX REGIME
Option to avail around 70 exemptions and deductions under the Income Tax Act Investment only in specified options were required to claim the tax benefit.
Practice to submit false disclosures for investment proofs is prevalent
NEW TAX REGIME
Tax Rates Reduced  Not attractive to those who were already investing and have binding premiums
No major tax saving options given, increasing cash flow in hands of taxpayer

The bottom line

The bottom line comes down to numbers. Before deciding on which regime is suitable for you, you need to calculate your tax liability under both the regimes with and without deductions and exemptions. The regime which gives you the lowest tax liability would be better depending on your requirements. Mrs. Sitharaman has given you the choice of reducing your tax liability in any way possible and so, the onus is on you to find out which regime works better for you.


FAQs on the Old Vs New Tax Regime

Q- Can I switch between the old and new tax regime?

Yes, a salaried individual can make a choice for every year as to which tax regime should be chosen. There is no compulsion if one scheme is selected for a year then it should be adhered every year. Taxpayers can switch amongst the schemes yearly.


Q- Is the new tax regime more beneficial?

New tax regime is more beneficial particularly for those who have not invested and are not looking forward for making investment in tax saving options eligible under the old scheme. This option is more lucrative for new joinees or senior citizens willing to have more liquidity in hand s compared to investments.


Q- Is HRA benefit available under the new tax regime?

House Rent Allowance or HRA exemption is not available under the new tax regime pronounced in Budget 2020.


Q- How to calculate tax for the new regime?

Tax under the new regime can be calculated as per the income tax slabs rates prescribed or with the help of income tax calculator.


Q- Whether rental income earners should shift to the new tax regime?

The choice of opting for the new tax regime shall depend upon your willing to make tax saving investments. In case you are a rental income earner and you are not looking forward for making any tax deductible contributions then you should preferably opt for the old tax regime. Still it would be suggested to take more informed decision by calculating your tax liability under both the regimes.