COMPARISON OF NEW INCOME TAX REGIME WITH OLD REGIME

The Budget 2020 introduced new income tax regime for individual taxpayers. However, the option for such concessional tax regime requires the taxpayer to forgo certain specific deductions. The taxpayer has to forgo standard deduction of Rs 50000, deduction under 80C of Rs 1.5lakh and interest on self-acquired property of Rs 2lakh.

HOW TO CHOOSE THE TAX REGIME FOR TDS ON SALARY FOR FY 2020-21 

Individual should remember that TDS on slary is deducted as per the applicable income tax slab rates. As per the circular issued by CBDT dated April 13, 2020 clarified that employers will have to deduct TDS from salary for FY 2020-21 as per the tax regime new or old chosen by employee. The employee should inform which option he choose to the employer. If he fails to do so the TDS will be deducted under the old regime. Once the tax regime has been chosen by the employee and informed to the employer, the employee cannot change the tax regime during the financial year. However, employee will have the option to switch the tax regime at the time of filing the Income Tax return, the circular stated.

Therefore, here are the few points to be consider in choosing your tax regime for TDS from salary for the FY 2020-21.

1. What if employee did not communicate choice of tax regime to the employer?

=>”The CBDT circular has clarified that unless communicated by an employee, the employer should deduct taxes from salary income as per the existing /old tax regime.” Further, if you do not submit proof of investments or declare how much investment you will be making in FY 2020-21, then this could lead to TDS from salary without the benefit of these exemptions.

2. Don’t forget the advance tax

=> Irrespective whether you choose the old tax regime or new tax regime, if your tax liability on all income less of TDS is more than  Rs 10000/- in this FY 2020-21, then you are liable to pay advance tax. As per the Income Tax Act, 1961 the individual are liable to pay 1% interest per month on tax amount due if advance tax installments are not paid on time. The income tax authorities may levy the interest on if the overall advance tax is not paid or short fall in TDS deduction.

Hence, it is advisable to the individual to carefully plan and make the appropriate declaration to the employer on the choice of regime.

=>The income tax law allows switching of tax regime at the time of filing of tax return. Considering the other income , a self-assessment /advance tax may be payable, if there is short deduction of TDS from salary if an employee chooses the new tax regime but switches to old tax regime at the time of filing return.

3. If employee opt for new tax regime for TDS from salary 

=> If the employee opts for new tax regime for deduction of taxes from salary, then employee should remember that the FORM 16 provided by the employer will not have any details of all the tax–exemptions or deductions that they are liable to claim under the old/existing tax regime.

=> As clarified by CBDT the individual are allowed to switch the tax regime at the filing of income tax return (ITR).

4. Non-claiming of certain tax-exemptions while filing ITR  

=> If you opt for new tax regime for the new tax regime for the purpose of TDS from salary but switch to old regime when filing ITR then you may be unable to claim certain tax-exemptions which are otherwise allowed in the old regime.

=> These tax exemptions are tax: tax on food coupons and tax exemption on leave travel allowance. As per budget tax benefit on food coupons is not available to employees in the new tax regime.

The new tax regime does not allow tax exemptions and deductions. If the employee opt for the new tax regime, it is not clear whether such exemptions can be claimed if one opts for the old tax regime at the time of filing of ITR.

=> However, other tax exemptions such as HRA and common deductions under 80C, 80D etc. can be claimed in ITR if you switch from new regime to old tax regime when filing ITR.

COMPARISON TABLE BETWEEN OLD REGIME AND REGIME

Tax liability (Rs) (excluding surcharge and education cess)

Annual Income (Rs.) As per new tax regime As per new tax regime Benefits as per the new tax regime
Slab rates As per new tax regime (No deduction/ Slab rates (%) As per existing tax regime (deduction/exemption available , but not considered)
250000
500000 5% 5%
750000 10% 37500 20% 62500 25000
800000 15% 45000 20% 72500 27500
1000000 15% 75000 20% 112500 37500
1250000 20% 125000 30% 187500 62500
1500000 25% 187500 30% 262500 75000
5000000 30% 1237500 30% 1312500 75000
7500000 30% 1987500 30% 2062500 75000
10000000 30% 2737500 30% 2812500 75000
15000000 30% 4237500 30% 4312500 75000
20000000 30% 5737500 30% 5812500 75000
35000000 30% 10237500 30% 10312500 75000
50000000 30% 14737500 30% 14812500 75000
55000000 30% 16237500 30% 16312500 75000

**No tax up to Rs 500000 taxable income, as Rebate under section 87A is available.

*Basic exemption income slab in case of a resident individual of the age 60 years or more (senior citizen) and resident individual of the age 80 years or more (very senior citizen) at any time during the previous year, continues to remain the same at Rs 3 lakh and Rs 5 lakh, respectively in the existing tax regime.

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