In the year 2020, the Finance Minister introduced a new tax regime that is optional, and individuals have the option to choose between Old Tax Regime and the New Tax Regime. The New Tax Regime has comparatively lower tax rates as compared to the Old Tax Regime but with few exemptions.
Income tax in India is based on the slab system that enables progressive taxation system in the country. This implies that the tax of an individual is directly proportional to the income of the individual. While the old taxation system has different tax slabs for individuals, HUF and NRI of different age groups and senior citizens the new tax slab is same for all. To pay taxes according to the new tax slab the assessee would have to give up certain rebates and deductions that are permissible under the old tax regime.
Here Is A Comparison Between The Old Tax Slab And The New Tax Slab:
| Income Tax Slab | Old tax regime | New Tax regime | ||
| Below 60 years | 60 years – 80 years | Above 80 years | ||
| Rs. 0 – 2.5Lakhs | NIL | NIL | NIL | NIL |
| Rs. 2.5 lakhs – Rs. 3 lakhs | 5% (tax rebate u/s 87a is available) | NIL | NIL | 5% (tax rebate u/s 87a is available) |
| Rs. 3 lakhs – Rs. 5 lakhs | 5% (tax rebate u/s 87a is available) | NIL | ||
| Rs. 5 lakhs – Rs. 7.5 lakhs | 20% | 20% | 20% | 10% |
| Rs. 7.5 lakhs – Rs. 10.00 lakhs | 20% | 20% | 20% | 15% |
| Rs. 10 lakhs – Rs. 12.50 lakhs | 30% | 30% | 30% | 20% |
| Rs.12.50 lakhs – Rs.15.00 Lakhs | 30% | 30% | 30% | 25% |
| Rs. 15.00 lakhs and above | 30% | 30% | 30% | 30% |
When Can You Choose To Opt For The Old And New Regime?
If an employee wishes to opt for the New Tax regime, he/she would have to intimate the employer at the beginning of the year. However, the employee cannot choose to opt out of the tax regime during the entire year but can change during filling of Income tax slab 2021.
A business can choose to opt for any one of the tax regime only once.
What are the various conditions for opting New Tax Regime
The taxpayers who opt for new tax regime will have to forgo few exemptions while a few of the exemptions are allowed.
The exemptions that are not allowed are – Leave Travel Allowance, House Rent Allowance, Conveyance allowance, Standard Deduction in salary, Professional tax, Interests on home loan, Children’s Education allowance, etc.
The exemptions allowed are – Transport allowance for differently abled, conveyance allowance of travelling to office for work, travel expenses for the transfer of job or employment, etc.
Which Tax Regime Is Best To Choose?
Let’s take an example of an individual earning 10 Lakhs per annum. We will check out which tax regime would be best to opt.
| Particulars | Old Tax Regime (in Lakhs) | New Tax Regime (in Lakhs) |
| Gross Income | 10,00,000 | 10,00,000 |
| Deductions: | ||
| U/s SEC 80 C: | 1,50,000 | |
| U/s SEC 80 D: | 25,000 | |
| U/s SEC 24(b): | 75,000 | |
| Taxable Income | 7,50,000 | 10,00,000 |
| 0 – 2.5 lakhs | ||
| 2.5 lakhs – 5 lakhs | 12,500 | 12,500 |
| 5 lakhs – 7.5 lakhs | 25,000 | |
| 7.5 lakhs – 10 Lakhs | 50,000 | 37,500 |
| Total Income tax | 62,500 | 75,000 |
| Cess 4% | 2,500 | 3,000 |
| Total tax to be paid | 65000 | 78000 |
So with a salary of 10 lakhs, an employee will have to give Rs. 65,000 under Old Tax Regime and Rs. 78,000 under New Tax Regime.