By CA Gauri Chadha
If you do not do tax saving investments or do it under compulsion to save tax, then there is a good news for you, now you can pay less tax by opting for new personal income tax regime if you do not avail the benefit of exemptions and deductions.
| 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% |
If you opt the new regime you will have to forego the benefits of around 70 exemptions and deductions like leave travel allowance (LTA) , house rent allowance (HRA) , standard deduction, section 24(b), all chapter VI A deductions like 80C, 80D, 80E, 80G , 80TTA , 80TTB , 80CCC, 80CCD, 80DD, 80EE, 80GG, ETC. This regime makes tax filing easier and hassle free since negligible documentation is to be maintained, moreover it will be beneficial for those who wish to have high liquidity in hands and do not wish to lock in money for a long time in tax saving instruments or have any tax saving expenditures on their head.
Usually all the tax saving investments have a lock in period of a few years, before which you cannot take out the money, and all the tax saving expenditures are not common like tuition fee , house property loan repayment etc.
Only two deductions can be claimed in new regime i.e 80CCD (2) – employer contribution and Section 80JJA which is for new employment.
How to choose between the two
In order to make a choice between the two an assessee must check out pros and cons of both and then take a decision. There may be instances where an assessee is opting for new regime and paying higher taxes in comparison to the old one but he chooses the new one to have higher liquidity in hands by not making heavy investments. 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 lifetime.
To make a comparison of tax outflow in both the regimes, income tax department has come up with a comparison utility which is available on its portal.
Comparison between the two
Let us assume a gross income of say Rs 10 lakhs and compare the tax outflow in both the regimes.
| Particulars | Old regime | New regime |
| CTC | 10,00,0000 | 10,00,0000 |
| Less HRA | 1,00,000 | – |
| Less Standard deduction | 50,000 | – |
| Less 80C | 1,50,000 | – |
| Less 80D | 25,000 | – |
| Less Sec 24(b) | 2,00,000 | – |
| Taxable income | 4,75,000 | 10,00,000 |
| Tax | NIL | 78,000 |
It is very clear from the above example that if your income is around 10 lacs and you are availing few exemptions and deductions then the old regime is beneficial for you. But if you need more cash in hand are ready to pay higher tax in then new regime is beneficial for you.
Disposable income in case of old regime in this case would be Rs 5,25,000 and in new regime it would be Rs 9,22,000.
There may be instances where tax outflow will be higher in old regime mostly it will be in cases where income is a bit lower
