New Tax regime vs Old Tax Regime:

Till now i am writing Articles related to GST but today one of my friend asked me – Should I opt for New Scheme or Old Scheme for A.Y 2021-22 ??

So today I will discuss very interesting topic – New Tax regime vs Old tax regime

Answer to above question need to be assessed on basis of your Income and deductions that you are claiming so as to decide which tax regime would be beneficial.

Let us understand difference in tax between old and new regime (Normal Citizen)–

Income Tax Slab Old Rate New rate Net Taxable Income Tax under old regime Tax under new regime
Up to Rs 2.5 lacs nil nil Rs. 250000 nil nil
Rs 2.5 lacs to Rs 5 lacs 5% 5% Rs. 500000 nil nil
Rs 5lacs to Rs 7.5 lacs 20% 10% Rs. 750000 Rs 65000 Rs 39000
Rs 7.5 lacs to Rs 10 lacs 20% 15% Rs. 1000000 Rs 117000 Rs 78000
Rs 10 lacs to Rs 12.5lacs 30% 20% Rs. 1250000 Rs 195000 Rs 130000
Rs 12.5 lacs to Rs 15 lacs 30% 25% Rs. 1500000 Rs 273000 Rs 195000
Rs 15 lacs and above 30% 30% Rs. 1600000 Rs 304200 Rs 226200

Now what about Section 87 A rebate??

It is available under both New tax regime as well as Old Tax regime.It means Individuals having Income up to Rs 5 lacs will be eligible for tax rebate Rs 12500 under both schemes.

Deductions not allowed under new tax regime-

  • Deductions under Chapter VI-A- Such as those under sections 80C,80CCC,80CCD,80D,80DD,80DDB,80E,80EEA except those under 80CCD(2) and 80JJAA
  • Interest incurred on home loan (Section 24b)
  • LTC (Section 10(5))
  • HRA ( Section 10(13A))
  • Allowance on income of minor (Section 10(32))
  • Standard deduction from Salaries (Section 16)
  • Exemption to SEZ (Section 10AA)
  • Additional depreciation (Section 32(1)iia)
  • Deduction from family pension (Section 57iia)
  • Section 32AD/33AB/33ABA ( Investment in new Plant & Machinery in notified backward areas,Tea development Account,Site Restoration Fund)
  • Section 35/35AD/35CCC( Expenditure on Scientific Research/Expenditure on Agriculture extension project}
  • Not allowed to set off losses from earlier assessment years due to above mentioned deductions or loss under the head ‘’Income from house property’’
  • In case of Individual or HUF having no business Income, option to opt for old vs new shall be exercised for every previous year before filling return of income.
  • In case of assessee having business income, option once exercised shall be valid for subsequent years also.

Deductions allowed under New Tax Regime-

  • Deduction u/s 80CCD(2) –Employer contribution to your pension account
  • Deduction u/s 80 JJAA –additional employee cost
  • Transport allowance for differently abled persons.
  • Conveyence allowance for performane of duties.
  • Allowance given for cost of travel/tour
  • Daily allowance given under certain conditions.

Till now I have discussed basic provisions – but now question comes which scheme to opt for –

  • New tax scheme is beneficial to only those taxpayers who have not invested in various tax saving schemes- LIC, NPS,NSC,Tax saving FD,ELSS,EPF and also not salaried employee enjoying HRA etc. Old scheme suited to middle –income group having sufficient investments in various tax saving schemes.
  • Only point is that you are middle class employee having Investment in tax saving schemes ,medial insurance and also have Interest on housing loan so better to opt for Old scheme .Higher Income group can opt for New scheme as they are not interested in tax Saving investments.

Queries/doubts related to above mailed at [email protected]

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