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 Slab | Tax Rates As Per New Regime | Tax Rates As Per Old Regime |
|---|---|---|
| ₹0 - ₹2,50,000 | Nil | Nil |
| ₹2,50,001 - ₹ 5,00,000 | 5% | 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:
| Particulars | New Regime | Old 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 |