Do You Really Save with the New Income Tax Slabs?

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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Do You Really Save with the New Income Tax Slabs?

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
	[email protected]%	Rs 12.5 Lakhs to Rs 15 [email protected] 25%	62500
	Rs 2,73,000	Total	Rs 1,87,500
		[email protected]%	7500
			Rs 1,95,000

• An assumption is made that taxpayers don’t claim the standard deduction of Rs 50,000 a year. This deduction is claimed by all salaried taxpayers.
• You also have several tax deductions like the Section 80C, Section 80E and Section 80D which are claimed by several taxpayers.
• There is also the Section 24 deduction on home loan interest and HRA benefit claimed by many taxpayers.

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:

• If you have an annual income up to Rs 6 Lakh, the tax liability under the new regime is similar to the old regime. This is because you enjoy a standard deduction of Rs 50,000 a year under the old regime. You pay the same taxes in both the cases for annual income of Rs 6 Lakhs.
• Nirmala Sitharaman has stated that there’s still a gain with the new tax regime even against a Section 80C tax benefit taken on the old regime. This is with an income of Rs 15 Lakhs. Now, if a taxpayer avails Section 24 which is home loan interest up to Rs 2 Lakhs a year on a self-occupied property and Section 80D and the Section 80E tax benefits, he saves more in the old 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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