With promises to simplify the Income Tax Act, the Finance Ministry has, from the AY 2021-22, brought a ‘New Taxation Regime’ – something which has only complicated the law. There is widespread confusion as to ‘which tax regime is better?’ and the only answer that’s truly correct is ‘it depends!!’

On one hand, the new tax regime offers lucrative slab rates to reduce the impact of taxation, while it increases the total income by removing various sorts of deductions from the income like standard deduction, chapter VI-A deductions etc. This sadly leaves us with no specific formula or equation through which the tax regime which should be opted for can be calculated.

The only option that remains is to calculate the tax at various levels of income and to find out the point of indifference – a point of income on which the tax as per old regime and new regime are equal and where it does not matter what tax regime you choose. Any level of income below the point of indifference will attract lower taxes only if old tax regime is opted and any income above that point of indifference will attract lower taxes in the new tax regime.

Such a “point of indifference” calculator is attached with this article which is easily downloadable. Only the data relating to the age of the assessee and the deductions availed or planned to be availed are required and the calculator throws out the tax regime which will be better on various levels of income and provides a point of indifference between the existing and the new tax regime.

Here are some ready references relating to the tax regimes and the point of indifference calculator:

1. Following are the rates of taxation prevailing from AY 2021-22 for different slabs in the old and new tax regimes:

Income Tax Slab

Existing Regime Slab Rates for AY 2021-22

Existing Regime Slab Rates for AY 2021-22

Individuals < 60 years of age

Individuals >= 60 but up to 80 years of age

Individuals >= 80 years of age

Applicable for all ages

0.00 – 2.50 Lakhs

NIL

NIL

NIL

NIL

2.50 – 3.00 Lakhs

5% (rebate u/s 87A available)

NIL

NIL

5% (rebate u/s 87A available)

3.00 – 5.00 Lakhs

5% (rebate u/s 87A available)

NIL

5.00 – 7.50 Lakhs

20%

20%

20%

10%

7.50 – 10.00 Lakhs

20%

20%

20%

15%

10.00 – 12.50 Lakhs

30%

30%

30%

20%

12.50 – 15.00 Lakhs

30%

30%

30%

25%

> 15.00 Lakhs

30%

30%

30%

30%

2. It can be inferred from the calculation of the point of indifference that for individuals having deductions from total income (like standard deduction, HRA, chapter VI-A deductions etc.) equal to or more than Rs.250000/-, then at each and every level of income, the existing tax regime will only be better.

3. Thus, to find out which tax regime is more suitable, first have a check whether the deductions or the planned deductions are equal to or more than Rs.250000/-. If yes, then directly opt for the existing tax regime instead of going for the new rates. In case the deductions are less than Rs.250000/-, then find out the better tax regime using the calculator.

 Download Old vs. New Tax Regime – Point of Indifference Calculator

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DISCLAIMER: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and / or facts available at that point in time and prepared with due accuracy & reliability. Readers are requested to check and refer to the relevant provisions of the statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the author is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

Author Bio

Qualification: CA in Practice
Company: Tarun Mehta & Co.
Location: Indore, Madhya Pradesh, India
Member Since: 08 May 2021 | Total Posts: 3
CA Abhinandan Jain is a CA in practice and is a partner in Tarun Mehta & Co. based in Indore (M.P.). He is currently extending his expertise and experience in Income Tax, Goods & Services Tax, Company Law and MCA Compliances, Banking and related fields. He can be reached out at abhinandan.j1 View Full Profile

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