OLD TAX REGIME VS NEW TAX REGIME
The Finance Minister proposed a New tax regime as an alternative to the existing Old Tax Regime for individual and HUFs. This New Tax Regime has been made option. A salaried person can choose between the Old tax regime and the New Tax regime.
This article will make a salaried person compare and choose between them after knowing the facts.
The Income Tax Department has come up with clarifications for those who want to opt for a new tax regime. The old tax slab rates will also continue to remain in effect. It is said by the Tax experts that an individual or HUF opting for New Tax Regime should be ready to give up on a lot of deductions that could help to reduce taxable income.
Let us Compare and understand in detail about the Old and New Tax regime
Income Tax rates under the New Tax regime and the Old Tax regime:
|Annual Income||Old Tax Regime||New Tax Regime|
|Up to 2.5 Lakh||NIL||NIL|
|2.5 Lakh to 5 Lakh||5%||5%|
|5 Lakh to 7.5 Lakh||20%||10%|
|7.5 Lakh to 10 Lakh||20%||15%|
|10 Lakh to12.5 Lakh||30%||20%|
|12.5 Lakh to 15 Lakh||30%||25%|
|Above 15 Lakh||30%||30%|
In the above table, We can see the difference between the Old Tax regime and the New Tax regime. Though New Tax regime has proposed lower income tax rates, till the segments Rs. 15 Lakh, but you also need to remember that the proposed lower tax rates will be applicable only when you are ready to give up exemptions and deductions under various provisions of the Income Tax Act, 1961. This clearly tells that if you are opting for New tax regime you should forgo exemptions and deduction available under chapter IV A that grants deductions under section 80.
NOTE: The Standard Deduction under Section 16 available to salaried persons and the deduction on home loan interest will be disallowed.
Here are the few Deductions and Exemptions among 70 you won’t get in New regime:
Will this New regime benefit the taxpayer?
You don’t really need to do an elaborate calculation to know which regime to choose. The answer is actually quite simple. Anyone claiming tax exemptions and deductions of more than Rs 2.5 lakh in a year will not gain from the new structure. This threshold of Rs 2.5 lakh includes the standard deduction of Rs 50,000 for which no investment is required. All salaried taxpayers are eligible for this, which leaves only an additional deduction of Rs 2 lakh. Of this, Rs 1.5 lakh is taken care of by Section 80C investments.
India's gross savings rate was approximately 30 percent in March 2019 and domestic savings by individuals is a significant contributor to the overall savings rate. If more individuals will opt for the new regime, the savings rate would decrease, nevertheless, the consumption cycle and demand would be revived.
Detailed Analysis of Old Tax regime and New Tax Regime:
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