The Buyt Desk
If you are a salaried individual then with every new financial year you need to be prepared to choose between the new and the old tax regime. Alongside the existing tax regime government introduced a new tax regime in Budget 2020. The new tax regime gives more tax rates as compared to the old tax regime. If you wish to continue with the old tax regime which you have been already following then you need not inform your employer. But if you want to shift to the new regime you must intimate this to the HR of your company.
This chart explains the way tax rates are applicable in the new and the old tax regime.
|
INCOME TAX SLABS |
OLD REGIME (WITH EXEMPTIONS AND DEDUCTIONS) |
NEW REGIME (WITHOUT EXEMPTIONS AND DEDUCTIONS) |
|
UPTO 2.5 LAKH |
NIL |
NIL |
|
2.5 – 5 LAKH |
5% |
5% |
|
5 – 7.5 LAKH |
20% |
10% |
|
7.5 – 10 LAKH |
20% |
15% |
|
10 – 12.5 LAKH |
30% |
20% |
|
12.5 – 15 LAKH |
30% |
25% |
|
ABOVE 15 LAKH |
30% |
30% |
How to select the right tax regime?
Well, there is no right or wrong in any of the tax regimes. It will vary from person to person depending upon their income, investment, and deduction that he/she gets. Here is a list of things that you should look at –
-
Tax Rates – The Old Tax regime has only 3 tax rates – 5%, 20 % and 30%. Whereas the new regime has just double the number of tax rates ranging from 5%, 10%, 15%, 20%, 25% and 30%.You may find that as far as tax rates are concerned the new regime gives you a concessional rate of tax but it comes with conditions.
-
Forego Exemption and Deduction – The aim of the new tax regime is to simplify tax filing. In a bid to do so the government has removed all the tax-saving benefits in the new regime. Opting for a new regime means you will forego around 70 exemptions and deduction of income tax. Like 80C deduction, standard deduction, HRA, housing loan interest benefit, and so on.
-
Lack of tax planning- The new tax regime is good for those people who do not invest in the tax-saving instrument and don’t claim tax deduction. There are many avenues of investment that can give you an income tax deduction and help you in saving tax. But then it is a possibility that an individual after covering all his/her expenses is never left with money to invest. For them, the new tax regime works well.
-
Allowed deduction- Only two deductions can be claimed in the new tax regime i.e 80CCD (2) – employer contribution to NPS and Section 80JJA which is for new employment.
Who can opt for and who can’t ?
A salaried employee can switch between both the regimes every year but an individual having income from business and profession cannot switch every year, they will get only one chance to choose in a lifetime.
Hope we have helped you in understanding which tax regime will work for you.
