The Finance Minister Nirmala Sitharaman introduced a new income tax regime in the Union Budget 2020. You have the choice to stick to the old tax regime. The new tax regime doesn’t allow you to claim a number of tax deductions and tax exemptions.
You have to forego LTA, HRA, Standard Deduction of Rs 50,000, Deduction under Section 80TTA/80TTB, Tax benefit on home loan interest under Section 24 and all Chapter V1A deductions. This means no Section 80C, Section 80D, Section 80E, Section 80U and so on.
Now, if you are the kind claiming HRA, Home Loan Interest, Section 80C, Section 80D, Section 80E or Section 80CCD(1B) for NPS, its best to stick to the old tax regime. The new regime isn’t of much use if you are a good tax planner.
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Total Annual Income (Rs) |
Deductions Claimed (Rs) |
Existing Tax (Rs) |
New Tax (Rs) |
8,00,000 |
1,38,000 |
46,800 |
46,800 |
10,00,000 |
1,88,000 |
78,000 |
78,000 |
12,00,000 |
1,91,000 |
1,19,600 |
1,19,600 |
15,00,000 |
2,50,000 |
1,95,000 |
1,95,000 |
We have taken Standard Deduction of Rs 50,000 into account when doing the calculations. Now, if you are claiming more than these deduction limits, its best to stick to the old tax regime.
See Also: Last Minute Tax Planning: What You Should Do?
Nirmala Sitharaman has come up with some interesting figures. You save Rs 78,000 if you are earning Rs 15 Lakhs and shift to the new tax regime.
(Old) Income of 15 Lakhs |
|
(New) Income of 15 Lakhs |
|
0-2.5 Lakhs |
0 |
0-2.5 Lakhs |
0 |
Rs 2.5 Lakhs to Rs 5 Lakhs @5% |
12,500 |
Rs 2.5 Lakhs to Rs 5 [email protected] 5% |
12,500 |
5 Lakhs to Rs 10 Lakhs @20% |
1,00,000 |
Rs 5 Lakhs to Rs 7.5 [email protected] 10% |
25,000 |
10 Lakhs to Rs 15 Lakhs @ 30% |
1,50,000 |
Rs 7.5 Lakhs to Rs 10 [email protected] 15% |
37,500 |
Total |
Rs 2,62,500 |
Rs 10 Lakhs to Rs 12.5 [email protected] 20% |
50,000 |
|
Rs 12.5 Lakhs to Rs 15 [email protected] 25% |
62500 |
|
Rs 2,73,000 |
Total |
Rs 1,87,500 |
|
|
7500 |
||
|
|
|
Rs 1,95,000 |
See Also: All You Must Know About Tax Planning
When taking into account these tax deductions and tax exemptions, a conclusion is reached that a lesser tax is paid under the older tax regime.
These are some of the conclusions that can be drawn from the New Tax Regime:
See Also: How Does an Income Tax Calculator Work?
Conclusion: If you are in the highest tax bracket and avail Section 24 deduction of Rs 2 Lakhs on home loan interest, Section 80C of Rs 1.5 Lakhs and Section 80D tax deduction on health insurance premium, you are better off under the old tax system. If you can avail a deduction of Rs 2.5 Lakhs or more, you are better off under the old tax regime.
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