Income TaxUpdates
Tax payable for Financial Year 2019-20 (AY 2020-21) under New income tax regime vis-a-vis old income tax regime
Through this article an attempt has been made to explain whether new income tax regime is better or old? - editor: gstgyan.co.in
- CA Ajay Joshi
In the new budget for the fiscal year 2020-21, Finance Minister Nirmala Sitharaman introduced the new income tax rate for tax-payers in India. The Finance minister said in her budget speech that the Current Income Tax Act is full of various exemptions and deductions that make compliance complicated and a burdensome process for the taxpayers.
Though the removal of tax deductions and exemptions would make the compliance less tedious, those who have maintained their financial portfolio to avail tax deductions as per the old slab are likely to pay more tax under the new tax slabs.
The new budget tries to curtail the option to save the incentives and puts more money in the hands of taxpayers. However, the Individuals and Hindu Unified Families (HUF) are given an option to choose between the old and the new tax regime.
Old tax regime rates:
• nil for the annual income up to Rs. 2.5 lakhs,.
• income group between Rs.2.5 lakhs and Rs. 5 lakhs @ 5%.
• income group between Rs. 5 lakhs to Rs. 12.5 lakh @ 10%.
• income Rs. 12.5 lakhs and above @ 30%.
New tax regime rates:
• income group between Rs. 5 lakhs and Rs. 7.5 lakhs @ 10%.
• income group between Rs. 7.5 lakhs to Rs. 10 lakh @ 15%.
• income group between Rs. 10-12.5 lakhs @ 20%.
• income group between Rs. 12.5-15 lakhs @ 25%.
In the old tax regime, the taxpayers are also benefitted from several tax exemptions and deductions including tax deductions on health insurance and ELSS investments under section 80C and house rent allowance, which is not possible on switching to the new system.
For a salaried taxpayer, he will have to forgo the available under the old tax regime under chapter VI-A, such as investments under Section 80C, HRA, health insurance premium, etc, in new tax regime.
There are no change in the surcharge, i.e., it will remain the same as the old one
• 10% for Rs. 50 lakhs to Rs. 1 Crore,
• 15% for Rs. 1 Crore to Rs. 2 Crores,
• 25% for Rs. 2 Crores to Rs. 5 Crores and
• 37% for over and above Rs. 5 Crores.
Comparison of new and old tax regimes
A. Tax Slabs and Tax Rates
The basic exemption given to people earning up to Rs. 5 lakh will remain the same.
Given below is the table with the old and new tax rate as applicable on the income:
| Annual Income (Rs.) | Old Tax Rate | New Tax Rate |
| Up to Rs. 2.5 lakhs | Nil | Nil |
| Rs. 2.5 lakhs to Rs. 5 lakhs | 5% | 5% |
| Rs. 5 lakhs to Rs. 7.5 lakhs | 20% | 10% |
| Rs. 7.5 lakhs to Rs. 10 lakhs | 20% | 15% |
| Rs. 10 lakhs to Rs. 12.5 lakhs | 30% | 20% |
| Rs. 12.5 lakhs to Rs. 15 lakhs | 30% | 25% |
| Rs. 15 lakhs and above | 30% | 30% |
Important points to consider:
- The new rates given in the above table are without any deductions under Chapter VI-A.
- In new rates, if a tax-payer claims a deduction of Rs. 2.5 lakhs (standard deduction Rs. 50,000, Rs. 1.50 lakhs u/s 80C and Rs. 50,000 as investment in NPS), the total tax will remain the same as the old one, but these deduction are not available in new regime.
- In case the person also claims interest on home loan deduction of Rs. 2 lakhs or HRA exemption, the old tax slab rate would be Rs. 46,800 lesser than the new regime.
Comparison of new and the old tax regime at different income levels
Income Rs. 10 lakhs, living in own house (Will not claim HRA) and is under 60 years of age.
Income Rs. 15 lakhs and aboveIncome Rs. 15 lakhs:
| Old Slabs | Old Tax amount (in Rs.) | New Slabs | New Tax amount (in Rs.) | |
| Income | 10,00,000 | 10,00,000 | ||
| Deductions 80C | 150,000 | N/A | ||
| Deductions 80 D | 25,000 | N/A | ||
| House Loan | 200,000 | N/A | ||
| Standard Deduction | 50,000 | N/A | ||
| Taxable Income | 5,75,000 | 10,00,000 | ||
| Slabs | 2.5-5 lakhs @ 5%
5-7.5 lakhs @ 20% |
12,500+15,000 | Rs. 2.5-5 lakhs @ 5%
Rs. 5-7.5 lakhs @ 10% Rs. 7.5-10 lakhs @15% |
12,500+25,000+37,500 |
| Total tax payable as per the income tax slab | 27,500 | 75,000 | ||
| Old Regime with Deductions (in Rs.) | New Regime (in Rs.) | |||
| Income | 15 lakhs | 15 lakhs | ||
| Exemptions/Deductions | Rs. 1.5 lakhs u/s 80C and Rs. 50,000 standard deduction – Total Rs. 2 lakhs | Nil | ||
| Taxable Income | 13 lakhs | 15 lakhs | ||
| Total Tax | 202,500 | 187,500 |
Income Rs. 30 lakhs:
| Old Tax amount with Deductions (in Rs.) | New Tax Regime (in Rs.) | |
| Income | 30 lakhs | 30 lakhs |
| Exemptions/Deductions | 4,25,000* | Nil |
| Taxable Income | 25,75,000 | 30,00,000 |
| Total Tax | 5,85,000** | 637,500** |
* Include Rs 1.5 lakhs u/s 80C; Rs. 50,000 standard deduction; Rs. 25,000 u/s 80D; Rs. 2 lakhs home loan interest u/s 24.
**The above payable tax would include Cess @ 4% extra. The above calculation is for reference purpose only.
Income Rs. 60 lakhs:
| Old Tax amount with Deductions (in Rs.) | New Tax Regime (in Rs.) | |
| Income | 60 lakhs | 60 lakhs |
| Exemptions/Deductions | 4,25,000* | Nil |
| Taxable Income | 55,75,000 | 60,00,000 |
| Surcharge @ 10% | 1,48,500 | 1,53,750 |
| Total Tax | 16,33,500** | 16.91,250** |
* Include Rs 1.5 lakhs u/s 80C; Rs. 50,000 standard deduction; Rs. 25,000 u/s 80D; Rs. 2 lakhs home loan interest u/s 24.
**The above payable tax would include Cess @ 4% extra. The above calculation is for reference purpose only.
Exemptions and Deductions under old and new regime:
The difference between the exemptions and deductions under the old tax regime and the new tax regime are tabulated below:
| Old Tax Regime | New Tax Regime |
| · Standard deduction
· House rent allowance exemption · Section 80C investments · Housing loan interest · Medical insurance premium · Education loan interest · Leave travel allowance (LTA) · Savings bank interest amount |
· 70 exemptions that were permitted under the old regime will not be available, including:
· Education loan interest · Section 80C investments · Housing loan interest · House rent allowance · Leave travel allowance · Standard deduction · Medical insurance premium · Savings bank interest 50 tax exemptions which will be allowed include: · Standard deduction on rent · VRS proceeds · Agricultural income · Retrenchment compensation · Income from life insurance · Leave encashment on retirement |
| · (Deductions allowed under the old tax regime:
· Deduction under section 80C, 80CCC, 80CCD · 80G, 80GG, 80GGA, 80GGC · 80E, 80EE, 80EEA, 80EEB · Deduction under section 80D, 80DD, 80DDB · 80IA, 80-IAB, 80-IAC, 80-IB, 80-IB- These will not be available in new regime.) |
|
Please note that the choice can be exercised every year and any regime which is beneficial can be adopted by the individual (except for those who have income from business or profession). Individuals who have income from business or profession is not allowed to switch between the new and old tax regimes every year. If they opt for the new taxation regime, such individuals get only one chance in their lifetime to go back to the old regime. Further, once switched back to existing tax regime, they will not be able opt for new tax regime unless their business income ceases to exist.
Conclusion:
Therefore, if NPS contribution/HRA exemption/ housing loan interest claims are more than Rs. 50,000 then sticking to the old regime would be beneficial. Individuals who are looking for flexibility in the investment choices and does not want to invest in the specified eligible instruments, may consider opting for the new tax regime.
The new tax regime, theoretically, might be offering lower tax rates and lesser complications but taking into consideration the overall tax benefits available as exemptions and deductions in old regime, the new tax regime does not seem to promise as one would end up paying a higher tax amount. The choice is off course subjective depending upon many circumstances.
