While choosing between old Vs new Tax regime
The new Direct Tax regime proposed in Budget 2020 is an option to continue existing or choosing the new tax regime. There may be confusion as to which regime is more beneficial than other. Under the old tax regime, the salaried individuals can continue paying taxes, as they had been doing till now; under the new regime, they will be liable to pay lower taxes, provided they forego their deductions and exemptions.
Proposed new tax regime and existing tax regime
|Total Income (Rs)||New tax regime||Existing Tax Regime|
|0 – 250000||Nil||Nil|
|250000 – 500000||5%||5%|
|500000 – 750000||10%||20%|
|750000 – 1000000||15%||20%|
|1000000 – 1250000||20%||30%|
|1250000 – 1500000||25%||30%|
|1500000 and above
Opting for new tax regime will cause the sacrifices of some deductions and exemption like
- Standard Deduction of Rs. 50,000 to salaried tax payers,
- House Rent Allowance for individuals staying in rented accommodation,
- Interest on housing loan for self-occupied property,
- Leave Travel Allowance twice in block of four years
- deduction under section 80C for provident fund contribution, life insurance premium, school tuition fee for children, ELSS, PPF etc.
None of the above can be claimed under the new tax regime.
Here are some steps to be considered while choosing between old Vs new tax regime: -
- Estimate the total income
As income tax slab rates for assessee having income below Rs.500000 and above Rs. 1500000 is the same in both the regimes; there is no need to sacrifices any deduction/exemption and opt for new tax regime.
- Applicable exemption
Check out all the exemption removed and how many of them are applicable to you.
Calculate the total income tax payable in both the tax regime considering deductions and exemption.
- Plan for your future investment
Plan for your future investments for long as well as short term which will benefit you in longer run and which regime may help you to achieve those goals.
- Finally choose wisely
First – time taxpayers may decide to choose the new tax regime as it’s simple to follow and translates to lower tax liability. However, in the long run, investments have financial benefits and taxpayers will want to go for the old regime as that will be more beneficial.