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.
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.
Helpful
Very useful information 👍