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.
