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%|
|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:
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:
|Less: Standard deduction||50,000|
|Gross total income||1,200,000|
|Less: Deduction u/s 80C||150,000|
As per Old Tax Regime:
|Add: Education cess @ 4%||5,100|
As per New Tax Regime:
|Add: Education cess @ 4%||5,000|
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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