The Budget 2020 introduced a new tax regime under section 115BAC giving an option to Individuals and HUF Taxpayers to pay income tax at lower rates. The new scheme is applicable for income earned for FY 2020-21 (AY 2021-22). The Ministry of Finance has removed around 70 tax deductions & exemptions while proposing the new tax regime.
Following is the comparison between old and new tax regime –
| Sr. No. | Particulars | Old Tax Regime | New tax Regime |
| 1 | Income tax slabs : | Rate | Rate |
| Upto Rs.2,50,000 | Nil | Nil | |
| Rs.2,50,001 to Rs.5,00,000 | 5% | 5% | |
| Rs.5,00,000 to Rs.7,50,000 | 20% | 10% | |
| Rs.7,50,001 to Rs.10,00,000 | 20% | 15% | |
| Rs.10,00,001 to Rs.12,50,000 | 30% | 20% | |
| Rs.12,50,001 to Rs.15,00,000 | 30% | 25% | |
| Rs.15,00,001 and above | 30% | 30% | |
| 2 | Surcharge on income :
Upto Rs.50 lacs Above Rs.50 lacs to Rs.1 Crore Above Rs.1 Crore |
Nil 10% 15% |
Nil 10% 15% |
| 3 | Health & Education Cess | 4% on (Tax + Surcharge thereon) | 4% on (Tax + Surcharge thereon) |
| 4 | Rebate u/s 87 A | Maximum rebate of Rs.12,500 if the taxable income is upto Rs.5 lacs | Maximum rebate of Rs.12,500 if the taxable income is upto Rs.5 lacs |
| 5 | Standard deduction (For salaried person) | Rs.50,000/- | Not available |
| 6 | Deductions like –
LTA, HRA, Professional Tax, Housing Loan – Principal & Interest, Tuition Fees, Chapter VI-A deductions |
Available | Not available |
| 7 | Deduction on contribution to National Pension Scheme (NPS)
(Benefit available for Salaried person) |
For Non-Government Employee, Maximum deduction allowed is lower of –
1) 10% of salary (Basic + Dearness Allowance) 2) Rs.50,000
|
Deduction is allowed on Employer’s contribution to Employee’s NPS A/c. Deduction of upto 10% of Salary (Basic + Dearness Allowance) qualifies for deduction u/s 80 CCD(2) irrespective of any limit.
Employee’s contribution to NPS would not attract any deduction.
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Making your choice between the two:
In light of the above and considering the new income tax regime, if taxpayers want to opt for the concessional new tax regime, they may evaluate both the regimes. A taxpayer who is looking for flexibility in investment choices may consider opting for the new tax regime. However, it is advisable to do a comparison between the two regimes.
Based on Gross Income and deductions, here is a quick summary of which taxation scheme to go ahead with while filing your Income Tax return for AY 2021-22
| Sr. No. | Gross Income (Rs.) | Deductions (Rs.) | Scheme Beneficial |
| 1 | Upto Rs.7,50,000 | > Rs.1,25,000 | Old |
| 2 | Rs.10,00,000 | > Rs.1,87,000 | Old |
| 3 | Rs.12,50,000 | > Rs.2,08,000 | Old |
| 4 | > Rs.15,00,000 | > Rs.2,50,000 | Old |
Individuals with income under head Salary, House Property, Capital Gains and Other Sources can choose any regime which is beneficial to them. This choice can be exercised every year meaning thereby they can switch between the two regimes every year based on the regime which is beneficial for that particular financial year.
Note that Individuals who have income from business or profession cannot switch between the new and old tax regimes every year. If they opt for the new taxation regime, such individuals get only one chance in their lifetime to go back to the old regime. Also, once you switch back to existing tax regime, you will not be able to opt for new tax regime unless income from business of profession ceases to exist.
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For Rs.15,00,001 and above income, if the tax slab is the same for old and new regimes. Why do we need deductions of > Rs.2,50,000 for the old regime?
Nice article. Very informative.
Please DO NOT go by advices. Calculatr with and without exemptions. Choose only whatever is beneficial. Various permutation and combinations applicable to one and all cannot be summarised in a simple article
This is the link of Taxguru to download Readymade Excel Utility to compare tax as per old and new regime. Link: https://taxguru.in/income-tax/excel-utility-compare-income-tax-regime-budget-2020.html