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Old Tax Regime vs. New Tax Regime

Old Tax Regime vs. New Tax Regime – Which is Better?

As there are 2 tax regime available in financial year 2020-21, it becomes essential for you to check which one you should opt to reduce the income tax burden. However, if you want to avail new income tax slab 2020 under the new tax regime, you cannot claim up to 70 deductions while calculating your income tax for financial year 2020-21. Let’s take some examples to understand which one is better – old tax regime or the new tax regime under different salary brackets.

Income Tax Slab and Rates For Individual FY 20-21 (AY21-22) PDF File Available Click Here

Case 1 – Taxable Income Less than Rs.10 lakh

Sudhir, a 28-year-old is working with a startup company earning Rs.7 lakh per annum. If he makes investments under Section 80C of Rs.1.5 lakh and assuming pays health insurance premium of Rs.10,000 which he can avail under Section 80D of Income Tax Act, 1961.

Let’s check the income tax rate 2020 and payable tax amount for FY 2020-21 (AY 2021-22) under the old tax regime vs new tax regime:

*Rebate u/s 87A of the Income Tax Act, 1961 is of Rs.12500 or Actual tax payable, whichever is less. This is applicable only to the individuals with taxable income up to Rs.5 lakh per annum

ParticularsNew Tax Regime (Amount in Rs.)Old Tax Regime (Amount in Rs.)
Gross Total Income7,00,0007,00,000
Less:- Section 80C Deductions(1,50,000)
Less:- Section 80D Deduction(10000)
Less:- Standard Deduction(50,000)
Taxable Income 7,00,0004,90,000

Tax payable as per the Income tax Slab FY 2020-21 (AY 2021-22)

Up to Rs.2,50,000
Rs.2,50,000 to Rs.5,00,00012,50012,500
Rs.5,00,001 to Rs.7,50,00020,000
Total32,50012,000
Less:- Rebate u/s 87A*12,000
Add:- Health & Education Cess (4%)1300
Net Tax Payable 33,800Nil

Case 2 – Taxable Income Between Rs.10 lakh to Rs.15 lakh

Priyank, a 38-year-old individual is working with a company. He earns a total income of Rs.12,00,000. He is planning to make investments under Section 80C of Rs.1.5 lakh and investments in National Pension System under Section 80CCD of Rs.50,000. He also has a medical insurance for which he is supposed to pay Rs.20,000 as his premium which he can avail as a deduction under Section 80D of Income Tax Act, 1961.

Let’s check the income tax payable for FY 2020-21 (AY 2021-22) under the old tax regime vs new tax regime:

ParticularsNew Tax Regime (Amount in Rs.)Old Tax Regime (Amount in Rs.)
Gross Total Income12,00,00012,00,000
Less:- Section 80C Deductions(1,50,000)
Less:- Section 80CCD Deduction(50,000)
Less:- Section 80D Deduction(20,000)
Less:- Standard Deduction(50,000)
Taxable Income 12,00,0009,30,000

Tax payable as per the Income tax Slab FY 2020-21 (AY 2021-22)

Up to Rs.2,50,000
Rs.2,50,001 to Rs.5,00,00012,50012,500
Rs.5,00,000 to 7,50,00025,00050,000
Rs.7,50,001 to 10,00,00037,50036,000
Rs.10,00,001 to 12,50,00040,000
Total 1,15,00098,500
Add:- Health & Education Cess (4%)4,6003,940
Net Tax Payable 1,19,6001,02,440

Case 3 – Taxable Income More than 15 lakh

Pankaj Singh, a 37-year-old individual is working with a MNC and earning Rs.16 lakh per annum. He is planning to make certain investments in this financial year to save tax. He is planning to make Rs.1.5 lakh investment under Section 80C and investments in NPS under Section 80CCD of Rs.50,000. He is also paying health insurance premium of Rs.25,000 which he can avail as a deduction under Section 80D. He has an ongoing home loan as well. He will avail a deduction of Rs.2 lakh on home loan interest amount as well under Section 24.

Let’s check the income tax payable for FY 2020-21 (AY 2021-22) under the old tax regime vs new tax regime:

ParticularsNew Tax Regime (Amount in Rs.)Old Tax Regime (Amount in Rs.)
Gross Total Income 16,00,00016,00,000
Less:- Section 80C Deductions(1,50,000)
Less:- Section 80CCD Deduction(50,000)
Less:- Section 80D Deduction (25,000)
Less:- Section 24 Deduction(2,00,000)
Less:- Standard Deduction (50,000)
Taxable Income 16,00,00011,25,000

Tax payable as per the Income tax Slab FY 2020-21 (AY 2021-22)

Up to Rs.2,50,000
Rs.2,50,001 to Rs.5,00,00012,50012,500
Rs.5,00,001 to Rs.7,50,00025,00050,000
Rs.7,50,001 to Rs.10,00,00037,50050,000
Rs.10,00,001 to Rs.12,50,00050,00037,500
Rs.12,50,001 to Rs.15,00,00062,500
More than Rs.15,00,000 30,000
Total2,17,5001,50,000
Add:- Health & Education Cess (4%)8,7006,000
Net Tax Payable 2,26,2001,56,000

The new income tax regime introduced lower income tax slab rates for income tax segments up to Rs.15 lakh. But, you can only avail the new tax regime if you are ready to forgo 70 deductions available under the old tax regime. These exemptions and deductions include Leave Travel Allowance, House Rent Allowance, deductions under chapter VI-A of the Income Tax Act which include Section 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG, 80GGA, 80GGC and others. Not only this, you will not be able to avail standard deduction and home loan interest under Section 24.

So, if you are making certain investments under the sections mentioned above, it is highly recommended to stay on the old tax regime as you will be able to reduce your taxable income, thus reducing your income tax liability as well.

On the other hand, if you are someone who is looking for an easy income tax calculation and income tax filing process or don’t want to make tax saving investments, then you can opt for the new tax regime.

File Your Income Tax Return Click Here 

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