Comparison of old & new Tax Regime FY 2020-21 (AY 2021-22)

The Finance Minister introduced new tax regime in Union Budget, 2020 wherein there is an option for individuals and HUF (Hindu Undivided Family) to pay taxes at lower rates without claiming deductions under various sections. The following Income Tax slab rates are notified in new tax regime vs old tax regime:

Income Tax SlabTax Rates As Per New RegimeTax Rates As Per Old Regime
₹0 – ₹2,50,000NilNil
₹2,50,001 – ₹ 5,00,0005%5%
₹5,00,001 – ₹ 7,50,000₹12500 + 10% of total income exceeding ₹5,00,000₹12500 + 20% of total income exceeding ₹5,00,000
₹7,50,001 – ₹ 10,00,000₹37500 + 15% of total income exceeding ₹7,50,000₹62500 + 20% of total income exceeding ₹7,50,000
₹10,00,001 – ₹12,50,000₹75000 + 20% of total income exceeding ₹10,00,000₹112500 + 30% of total income exceeding ₹10,00,000
₹12,50,001 – ₹15,00,000₹125000 + 25% of total income exceeding ₹12,50,000₹187500 + 30% of total income exceeding ₹12,50,000
Above ₹ 15,00,000₹187500 + 30% of total income exceeding ₹15,00,000₹262500 + 30% of total income exceeding ₹15,00,000

New tax regime slab rates are not differentiated based on age group. However, under old tax regime the basic income threshold exempt from tax for senior citizen (aged 60 to 80 years) and super senior citizens (aged above 80 years) is ₹ 3 lakh and ₹ 5 lakh respectively.

However, under new tax regime person cannot claim up to 70 income tax deductions while calculating taxes. Hence, every person has to make his/her own calculation as per old and new tax regime and calculate which one is beneficial based on type of investments made and returns earned on those investments.

Which Exemptions And Deductions Are Allowed And Which Have Been Removed? 

Exemptions means the taxpayer is free from the tax burden on certain incomes. For example, you do not have to pay tax on income from agriculture.

Deduction means removing certain investments and expenditures the taxpayer makes and then calculating the gross income. For example, if you pay Rs. 20,000 as health insurance premium, you can deduct this amount from your total income.

In the ‘old tax regime’ there are 120 exemptions. Taxpayers do not benefit from all of them. Most of them complicate the direct tax system. After thorough study, the Ministry of Finance has removed around 70 exemptions.

Now the question is if you opt for the new tax regime, what are the exemptions and deductions you wouldn’t be able to claim further? Here’s a list

  • Leave Travel Allowance
  • House rent allowance
  • Standard deduction of Rs 50,000 that was available for salaried individuals
  • Deductions available under Section 80TTA/TTB ( on interest from savings account deposits )
  • Entertainment allowance deduction and professional tax ( For government employees)
  • Tax relief on interest paid on home loan for self occupied or vacant property u/s 24
  • Deduction of Rs 15000 allowed from family pension under clause (iia) ( Section 57)
  • Tax-saving investment deductions under Chapter VI-A (80C,80D, 80E,80CCC, 80CCD, 80D, 80DD, 80DDB,, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) (Except, deduction under Section 80CCD(2)—employers contribution to NPS, and Section 80JJA) and so on. These popular tax saving investment options include ELSS, NPS, PPF, tax break on insurance premium among others.

One can still claim deduction under sub-section ( 2) of section 80CCD which is basically employer’s contribution towards employee’s account in NPS and section 80JJAA ( for new employment). Also note that if the employee’s contribution to EPF and NPS exceeds more than Rs 7.5 Lakh, in the financial year in question, then the employee is liable to pay tax. Here’s a list of important exemptions that are retained in the new system

Important exemptions which are retained in the new system:

  • Income from Life Insurance,
  • Agricultural Income,
  • Standard reduction on rent,
  • Retrenchment compensation,
  • Leave encashment on retirement,
  • VRS proceeds up to Rs 5 lakhs,
  • Death cum retirement benefit,
  • Money received as a scholarship for education, etc.

An example of a comparison between old and new tax regime? 

Consider an example, a person aged 35 years has a total income of ₹11, 00,000, and has made the investment under section 80C of ₹1, 50,000, and under Section 80CCD of ₹50,000. He has claimed income tax deduction with medical and Leave travel allowance of ₹50000 and HRA of ₹1,50,000 The tax payable under new and old tax regime is as follows:

ParticularsNew RegimeOld Regime
Gross total income₹ 11,00,000₹ 11,00,000
Less: Deductions under 80C₹ 0₹ 1,50,000
Less: Standard Deduction (Medical & Travel Allowance)₹ 0₹ 50,000
Less: Deductions under 80CCD₹ 0₹ 50,000
Less : HRA deduction as per section 10(13A)₹ 0₹ 1,50,000
Taxable Income₹ 11,00,000₹ 7,00,000
Taxes payable as per slab rates
₹0 – ₹2,50,000₹ 0₹ 0
₹2,50,001 – ₹ 5,00,000₹ 12,500₹ 12,500
₹5,00,001 – ₹ 7,50,000₹ 25,000₹ 40,000
₹7,50,001 – ₹ 10,00,000₹ 37,500₹ 0
₹10,00,001 – ₹12,50,000₹ 20,000₹ 0
Total taxes₹ 95,000₹ 52,500
Which one is better ? – Both systems have their own sets of pros and cons. The old system has many exemptions and deductions under numerous sections – availing a few of these required people to invest in tax saving investment options, which helped inculcate a good habit of investing. On the other hand, the new system gives people more flexibility and tries to simplify the process. If you are someone who was claiming a lot of deductions under the old regime, you can probably save better sticking with the same system, as per the calculations. If you weren’t making any tax-saving investments or claiming any deductions earlier too, then maybe the new system may prove beneficial. It also varies based on which slab you are in as well. However, since the system is new, it makes sense to consult a competent tax expert who can suggest the optimal tax saving route for you.

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