Taxpayer can now choose between the new and the Old Tax Regime based on their investment plans and according to their existing payroll tax structure.

Government has introduced section 115BAC in Finance Act 2020 beginning from the financial year 01st April, 2020 and onwards, by reducing the existing tax slab for an income segments upto Rs. 15 lakhs. However, for availment of this reduced tax rate, taxpayer need to forego his eligible tax exemptions and deductions which he was availing in his old financial years.

Old Tax Regime vs New Tax Regime

Slab chart Old vs New Tax Regime-

Total Income (Rs) New Rate Old Rate
Up to 2,50,000 Nil Nil
From 2,50,001 to 5,00,000 5% 5%
From 5,00,001 to 7,50,000 10% 20%
From 7,50,001 to 10,00,000 15% 20%
From 10,00,001 to 12,50,000 20% 30%
From 12,50,001 to 15,00,000 25% 30%
Above 15,00,000 30% 30%

Let us now compare the same through an illustration-

Example 1

Estimated Annual Income                     Rs. 10,00,000

Less: Exemptions & Deductions            Rs. 2,00,000

Net taxable Income                                Rs. 8,00,000

Tax payable under old Regime              Rs. 75,400

Tax payable under New Regime            Rs. 78,000

Example 2

Estimated Annual Income                     Rs. 10,00,000

Less: Exemptions & Deductions            NA

Net Taxable Income                               Rs. 10,00,000 

Tax payable under old Regime              Rs. 1,17,000

Tax payable under New Regime            Rs. 78,000

Going by the illustration above, if an individual wants to avail an exemption and deductions on his existing investments including interest on home loans upto the limit of Rs. 2 lakhs, its better go for an old tax regime or else the new tax regime will prove better in terms of tax saving.

Hence, it is important to note that each taxpayer should calculate income tax, taking into account their tax-saving investments and then choose the regime.

Author Bio

Qualification: CA in Practice
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Location: Gurgaon, Haryana, IN
Member Since: 09 Sep 2020 | Total Posts: 6
Practising Chartered Accountant having experience of more than 8 years in handling taxation, Income tax filings, ROC work, GST, Stautory & Tax audits, Foreign payment compliances etc. Industry exposure includes logistics sector with transportation, GTA, trading, start ups, manufacturing etc. View Full Profile

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January 2021