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A taxpayer has to forego 70 tax exemptions and standard deductions in new income tax regime.
Finance Minister Nirmala Sitharaman announced a new simplified tax regime for personal taxpayers. The rates under the new tax regime have the option for HUFs to pay their taxes as per the new rules with no exemptions and reduced tax rates. The new tax rates proposed by the Ministry of Finance are aimed at boosting the Indian economy.
It is all upon the taxpayers as to which option they want to opt for according to their needs and income. New tax rates will keep you away from tax crunch but for the longer term you may end up paying high rates. Whereas, the old tax regime can give you investment options but a cash crunch. It totally depends on taxpayers and the exemption and deduction which they want to avail or not under different slab rates and options.
According to financial industry expert Hemant Sood, Managing Director, Findoc Financial Services Group: “The tax rates have been reduced but with the new tax rates one cannot avail around 70 tax exemptions and deductions out of more than 100 which were earlier can be availed. So, basically, one has to forego all of these. However, it depends upon person to person which tax rates are beneficial to go ahead with.”
Income Tax Slab for New FY 2020-21 |
New Tax Rate |
Old Tax Rate |
Upto Rs 2.5 Lakhs |
NIL
|
NIL |
Rs 2.5- Rs 5 Lakhs |
5% |
5% |
Rs 5- Rs 7.5 Lakhs |
10% |
20% |
Rs 7.5 -Rs 10 Lakhs |
15% |
20% |
Rs 10 - Rs 12.5 Lakhs |
20% |
30% |
Rs 12.5 - Rs 15 Lakhs |
25% |
30% |
Above Rs 15 Lakhs |
30% |
30% |
The difference between New and Old income tax regime:
- Leave travel concession as contained in clause (5) of section 10
- House rent allowance as contained in clause (13A) of section 10
- The allowances as contained in clause (14) of section 10
- Standard deduction of Rs. 50,000 u/s 16
- Employment/professional tax deduction as contained in section 16
- Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law)
- Any deduction under chapter VI-A; [except 80CCD (2) - NPS Contribution by the employer
- Salary up to 5 lakhs: No income tax.
- Salary 6 lakh: The one can invest 50 K in 80C, mediclaim, and others to get in 5 lakh range and hence have to pay no income tax. (50K will be deducted in Standard Deduction)
- Salary 7 lakh: Either pay 32.5 K with new slab or invest 1.5 lakh under 80C and others to save the tax (50K will be deducted in Standard Deduction)
- Salary 8 lakh: Either pay 40 K with new slab or invest 1.5 lakh under 80C and others, 50K in NPS to save the tax, (50K will be deducted in Standard Deduction). Still have to pay 22.5K for tax
- Salary 9 lakh: Either pay 60 K with new slab or invest 1.5 lakh under 80C and others, 50K in NPS, (50K will be deducted in Standard Deduction), and still pay 42.5 K
“Above calculations suggest that old tax rates with exemptions and deductions are a better option for those individuals having higher income bracket,” says Sood. But for low-income brackets, if they want to save some capital with the help of investment, then the old tax regime is good for them. Else to keep cash with them the new option is better.