Which one to choose Old Tax Regime? or New Tax Regime

Last Updated On: Dec. 20, 2021, 11:11 p.m.
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Which one to choose? Old Tax Regime or New Tax Regime?

 

Haven't you filed your Income Tax Return?  Are you still in confusion which one to opt? 

This article will help you to choose better.

 

 

Let us first compare between the slab rates under Old Tax Regime and New Tax Regime 

 

Sl.No Tax Slab Old Tax Regime New Tax Regime
1. 0 – 2,50,000 0% 0%
2. 2,50,000 – 5,00,000 5% 5%
3. 5,00,000 – 7,50,000 20% 10%
4. 7,50,000 – 10,00,000 20% 15%
5. 10,00,000 – 12,50,000 30% 20%

6.

12,50,000 – 15,00,000 30% 25%
7. 15,00,000 & above 30% 30%

 

As you can see under the new tax regime, income between Rs. 5 lakh and Rs. 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. There is 20 percent flat on the entire slab for the existing regime. The earlier Rs. 10 lakh+ slab where you paid 30 percent, has been broken into three parts with rates of 20 percent for Rs. 10-12.5 lakh, 25 percent for Rs. 12.5 lakh-15 lakh and then 30 percent for Rs. 15 lakh and above.

 

 

Deduction and Exemption that is allowed  in Old Tax Regime  but not in New Tax Regime:

  • Leave travel allowance u/s 10(5)
  • House rent allowance u/s 10(13A)
  • Allowances to MPs/MLAs u/s10(17)
  • Deduction for SEZ unit u/s 10AA
  • Any deduction under chapter VI-A except deduction u/s 80CCD(2) (employer contribution on account of employee in notified pension scheme)or 80JJAA (for new employment)
  • Standard deduction for salaried employees – Rs 50,000 and deduction for entertainment allowance and professional tax as contained in section 16
  • Interest u/s 24 in respect of self occupied or vacant property u/s 23(2)
  • Allowance exempt u/s 10(14) except transport allowance to a divyang employee, conveyance allowance, daily allowance, cost to travel on tour
  • Additional depreciation u/s 32(1)(iia)
  • Deductions u/s 32AD, 33AB and 33ABA
  • Deduction for donation or expenditure on scientific research u/s 32(1)(ii)/(iia)/(iii) or 35(2AA)
  • Deduction from family pension under clause (iia) of section 57
  • Deduction u/s 35AD or 35CCC
  • Standard deduction on rent – 30% of the net annual value u/s 24
  • Standard deduction on rent – 30% of the net annual value u/s 24

 

Deductions that are allowed in New Tax Regime:

Standard deduction on rent – 30% of the net annual value u/s 24

Rebate u/s 87A (Max Rs. 12500)

 

Let us understand the Old Tax Regime and New Tax Regime with a proper example:

 

Income  Amount
Salary

1,250,000

Less: Standard deduction 50,000
Gross total income 1,200,000
Less: Deduction u/s 80C 150,000
Total income

1,050,000

 

As per Old Tax Regime:

Income tax

127,500
Add: Education cess @ 4% 5,100
Total tax  132,600

 

As per New Tax Regime:

Income tax 1,25,000
Add: Education cess @ 4% 5,000
Total tax  1,30,000

 

Difference is Rs.2,600

In the above example, for an income of Rs 12,50,000, the new tax regime is marginally beneficial. However, if you claim further deductions for health insurance, investment in NPS, education loan and so on, the existing regime will be helpful.

 

Important thing to note:

The choice is available every year and any regime which is beneficial can be adopted by the individual & HUF (except for those who have income from business or profession).

Individuals who have income from business or profession cannot switch between the new and old regimes every year. If they opt for the new regime, such taxpayers 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 regime unless their business income ceases to exist.

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