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New Vs old tax slabs FY 2020-21: Which is Better

The finance minister has proposed a new income tax regime under 7 tax slabs. The new tax regime co-exists with the old tax regime and is optional. Individuals can choose New tax regime only if they forego the tax deductions on income tax slab.

The new tax rates have been slashed to income up to 15 lakhs bifurcating in to 6 slabs which was earlier bifurcated to only 4 slabs. Below is a table to check the new tax rates as compared to the old tax rates.

Income Slabs Old tax regime New tax regime
Upto 2.5 lakhs Nil Nil
2.5-5 lakhs 5% 5%
5-7.5 lakhs 20% 10%
7.5-10 lakhs 20% 15%
10- 12.5 lakhs 30% 20%
12-15 lakhs 30% 25%
Above 15 lakhs 30% 30%

 

The cess charges are same for both the tax regime.

If an individual wishes to choose the new tax regime the person has to forego the following tax deductions-

  •         House Rent Allowance – As allowed in the salary structure
  •         Leave travel Allowance- tax free once in two years
  •         Standard deduction of Rs. 50,000
  •         Deduction on Home loan interest
  •         Any investment under Section 80C- limit of 1.5 lakhs
  •         NPS contribution of Rs. 50,000
  •         Deduction under Section 80 D for medical insurance
  •         Deduction for interest on Education loan
  •         Any other deduction under Section 80

In all there are 70 deductions that one must forgo to file income tax under the New tax regime.

Apart from the changes mentioned in the new tax slab the increased tax rebate to Rs. 12,500 for those whose net taxable income is up to 5 lakhs remains the same.  Let’s compare the benefits of tax slabs at different levels of income.

Income of 7.5 Lakhs-

If a person does not claim any deduction for this income, then the tax payable under both the regimes are as below-

Item 2019-2020 2020-2021
Income Level Tax rate (%) Tax in Amount Tax rate (%) Tax in Amount
2,50,000 0 0 0 0
2,50,001- 5,00,000 5 12,500 5 12,500
5,00,001- 7,50,000 20 50,000 10 25,000
Tax Deductions   0   0
Taxes to be paid   62,500   37,500
Cess charges 4 2,500 4 1,500
Taxes payable   65,000   39,000

 

The tax payable in case of old regime is higher than New regime by Rs. 26,000

Income of 12.5 Lakhs-

Item 2019-2020 2020-2021
Income Level Tax rate (%) Tax in Amount Tax rate (%) Tax in Amount
2,50,000 0 0 0 0
2,50,001- 5,00,000 5 12,500 5 12,500
5,00,001- 7,50,000 20 50,000 10 25,000
7,50,001-10,00,000 20 50,000 15 37,500
10,00,001-12,50,000 30 75,000 20 50,000
Tax Deductions   0   0
Taxes to be paid   1,87,500   1,25,000
Cess charges 4 7,500 4 5,000
Taxes payable   1,95,000   1,30,000

 

The tax payable under this salary slab for old regime is Rs. 1,95,000 and for old regime is Rs. 1,30,000. This shows that the new regime helps save Rs. 65,000 on the taxes.

It is also necessary to check the tax payable in case the individuals claim for tax deductions. From the above two examples it is evident that the new tax regime would be beneficial for those who do not claim any deductions on tax for their income.

 

 

 

 

 

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