Will New Tax Slabs Help Senior Citizens?

The Finance Minister Nirmala Sitharaman introduced a new tax regime in the Union Budget 2020. This new tax regime taxes you at a lower rate; than the earlier tax regime. However, you will not be able to enjoy tax exemptions and popular tax deductions like Section 80C, Section 24 and even the HRA tax exemption, not to mention the Standard Deduction. Now to the big question? Will the new tax slabs help senior citizens?

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Will New Tax Slabs Help Senior Citizens?

The new tax regime doesn’t offer a higher tax exemption to senior citizens. Under current income tax laws, senior and super senior citizens enjoy a basic threshold tax exemption limit of Rs 3 Lakhs for senior citizens and Rs 5 Lakhs for super-senior citizens.

See Also: Do You Really Save with the New Income Tax Slabs?

This itself was a sizeable tax exemption under the old regime. The new tax regime treats normal citizens, senior and super senior citizens equally. It’s up to senior citizens to decide if they benefit from the new income tax regime.

New Income Tax Slabs under Union Budget 2020

Income Tax Slabs	Old Tax Rates	New Tax Rates
Up to Rs 2.5 Lakhs	0	0
Rs 2.5 Lakhs to Rs 5 Lakhs	5*	5
Rs 5 Lakhs to Rs 7.5 Lakhs	20	10
Rs 7.5 Lakhs to Rs 10 Lakhs	20	15
Rs 10 Lakhs to Rs 12.5 Lakhs	30	20
Rs 12.5 Lakhs to Rs 15 Lakhs	30	25
Rs 15 Lakhs and above	30	30

If you do the calculations you will find a senior citizen has a specific tax deduction and tax exemption level which needs to be claimed so that tax payable in both regimes are the same. This is known as the breakeven tax deduction and tax exemption.

See Also: Calculate Income Tax Slabs With New Rules

Let’s say a senior citizen earns Rs 7.5 Lakhs. We will calculate income tax under the new income tax regime.  You will find that the senior citizens must pay Rs 39,000 under the new income tax regime.

Let’s take a look at the income tax slabs under the old regime:

Income Tax Slabs	Tax Rate for Senior citizens aged 60 Years But Less than 80 Years
Income up to Rs 3,00,000	No tax
Income from Rs 3,00,000 – Rs 5,00,000	5%
Income from Rs 5,00,000 – 10,00,000	20%
Income more than Rs 10,00,000	30%

You will find that the senior citizens must pay Rs 62,400 under the older income tax regime. So, without tax deductions and tax exemptions the new tax regime is better than the older tax regime.  Now, if the senior citizen avails tax deductions and exemptions up to Rs 1,12,500, you will find tax liability the same in both cases. 

Conclusion: If a senior citizen is able to avail tax deductions and tax exemptions up to Rs 1,12,500 or more, it’s better to stick to the older tax regime. If not, it’s better to shift to the newer tax regime.

Let’s say a senior citizen earns Rs 10 Lakhs. We will calculate income tax under the new income tax regime.  You will find that the senior citizens must pay Rs 78,000 under the new income tax regime. Now, if the senior citizen avails tax deductions and exemptions up to Rs 1,75,000; you will find tax liability the same in both cases.

See Also: New Income Tax Regime vs Old: Which is Better?

Conclusion: If a senior citizen is able to avail tax deductions and tax exemptions up to Rs 1,75,000 or more, it’s better to stick to the older tax regime. If not, it’s better to shift to the newer tax regime.

Let’s say a senior citizen earns Rs 12.5 Lakhs. We will calculate income tax under the new income tax regime. You will find that the senior citizens must pay Rs 1,30,000 under the new income tax regime. Now, if the senior citizen avails tax deductions and exemptions up to Rs 2 Lakhs you will find tax liability the same in both cases.        

Conclusion: If a senior citizen is able to avail tax deductions and tax exemptions up to Rs 2,00,000 or more, it’s better to stick to the older tax regime. If not it’s better to shift to the newer tax regime.

Let’s say a senior citizen earns Rs 15 Lakhs. We will calculate income tax under the new income tax regime. You will find that the senior citizens must pay Rs 1,95,000 under the new income tax regime. Now, if the senior citizen avails tax deductions and exemptions up to Rs 2,41,667 you will find tax liability the same in both cases. 

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