In the Union Budget 2020 presented by our Finance Minister Nirmala Sitharaman, introduces a new tax regime with more income tax slabs and reduced tax rates under the new section 115BAC from the current financial year 2020-21.
You have an option to choose between the Old and New tax regimes as per your preference and intimate the selection to your employer.
If such intimation is not made by you, the employer shall consider it as an old regime and deduct your tax accordingly.
Once you make your choice, then you cannot switch to the other tax regime during the rest of the financial year.
You can switch to other tax regimes only at the time of income tax return filing.
In case you want to opt for a new tax regime, you will have to forego certain tax deductions and exemptions.
In most cases, with the new tax regime forgoing tax deductions, income tax works out to be higher.
Let’s compare the two tax regimes and know which one is better for you.
There is two difference between old and new tax regime.
One, in the new regime, the tax slabs have reduced tax rates compare to the old tax regime.
Two, all the exemptions and deductions that were being used by you in the old regime won’t be available in the new regime like standard deduction, HRA benefit,80C,80D LTA, home loan interest, etc.
|Income Slabs||Old Tax Regime||New Tax Regime|
|₹0 – ₹2,50,000||Nil||Nil|
|₹2,50,001 – ₹ 5,00,000||5%||5%|
|₹5,00,001 – ₹ 7,50,000||20%||10%|
|₹7,50,001 – ₹ 10,00,000||20%||15%|
|₹10,00,001 – ₹12,50,000||30%||20%|
|₹12,50,001 – ₹15,00,000||30%||25%|
|Above ₹ 15,00,000||30%||30%|
* Additional Cass & Surcharge as applicable
Under the new tax regime, income between Rs.5 lakh to 7.5 lakh would be taxed at 10 percent, while income between Rs.7.5 lakh to Rs.10 lakh would be taxed at 15 percent. This was 20 percent flat on the entire range (Rs.5 lakh to 10 lakh) in the old tax regime. Earlier Rs.10 lakh plus income slab where you paid 30 percent, has been broken into three parts with rates of 20 percent for Rs.10 lakh to 12.5 lakh, 25 percent for Rs.12.5 lakh to 15 lakh and then 30 percent for Rs.15 lakh and above.
The first reaction would be that the new tax regime looks better. However, with the new tax regime, you will have to forego certain exemptions and deductions which might nullify these gains.
Below is a comparative list of exemption and deductions which are allowed or not allowed.
|Exemption & Deduction||Old Tax Regime||New Tax Regime|
|Rebate of Rs.12500 u/s 87A||Allowed |
if income is less than Rs.5 lakh
if income is less than Rs.5 lakh
|House Rent Allowance Exemption||Allowed||Not Allowed|
|STANDARD DEDUCTION||Allowed||Not Allowed|
|Leave Travel Allowance||Allowed||Not Allowed|
|Child Education Allowance||Allowed||Not Allowed|
|Child Hostel Allowance||Allowed||Not Allowed|
|Professional Devlp Reim||Allowed||Not Allowed|
|Fuel & Maint. Reimb||Allowed||Not Allowed|
|Driver Salary Reimb||Allowed||Not Allowed|
|Uniform Reimbursement||Allowed||Not Allowed|
|Home Loan Interest u/s Sec.24||Allowed||Not Allowed|
|CHAPTER VIA (Sec 80s)||Allowed|
80C, 80CCC,80CCD, 80D,80DD, 80DDB,80E,etc.
(Including PF / VPF not allowed)
|80 CCD (2)||Allowed – Employer Contribution @ 10% of Basic towards NPS||Allowed- Employer Contribution @ 10% of Basic towards NPS|
|GRATUITY||Exempted as per existing provision- INR 20 Lac||Exempted as per existing provision- INR 20 Lac|
|LEAVE ENCASHMENT||Exempt upto Rs.3 lakhs at the time of retirement||Exempt upto Rs.3 lakhs at the time of retirement|
New Tax Regime is better for individuals with no investments and are not willing to make the same anytime sooner.
You should stick to Old tax regime if you have Home Loan or have a significant amount of investments.
Filing income tax returns would be very easy under the new tax regime as there is no documentation and no tracking.
I have given below the link of income tax calculator for comparing old and new tax regime.
You can download it and fill up the details to know which tax regime works best for you.
I hope this Income Tax calculator FY 2020-21 will be useful to you.
Thanks for your time in reading this article, Hope you liked it.