Budget 2020 has introduced new tax regime for FY 2020-21 for individual tax payer. The new tax has lower tax slabs but most of deductions cannot be availed. Individual can chose between old or low tax regime for FY21 only once. This blog will help you to make smart selection.
Old Regime Tax Rate FY21
Upto 2,50,000 Nil
From 2,50,000 to 5,00,000 5%
From 5,00,000 to 10,00,000 20%
From 10,00,000 and above 30%
New Regime Tax Rate FY21
Upto 2,50,000 Nil
From 2,50,000 to 5,00,000 5%
From 5,00,001 to 7,50,000 10%
From 7,50,001 to 10,00,000 15%
From 10,00,001 to 12,50,000 20%
From 12,50,001 to 15,00,000 25%
Above 15,00,000 30%
Below Deductions will NOT be allowed in New Tax Regime:
- LTA - Leave travel concession u/s. 10(5)
- HRA- House rent allowance u/s. 10(13A)
- Standard deduction of Rs. 50,000/- ,
- Deduction of employment/professional tax u/s. 16 Rs 2,400/-
- Interest on borrowed capital for self-occupied (upto Rs 2,00,000) or vacant property
- Exemption in respect of free food and beverages through vouchers
- Any deduction under chapter VIA like section 80C Rs 1,50,000, and 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA ,80G, 80GG, 80GGA, 80GGC
Below Deductions will be allowed in New Tax Regime:
- Contribution by employer to National Pension Scheme u/s 80 CCD
Let us understand by example
Example 1
Individual tax payer below age 60 having 9 lac salary makes no 80C investement
Tax with Old Tax regime: Rs 79,061 (considering standard deduction 50000 + Prof Tax 2400 + 80C PF 30000)
Tax with new Tax regime: Rs 62,400
Individual must select New Tax regime as benifit is Rs 16,661
Example 2
Individual tax payer below age 60 having 9 lac salary makes 80C investement of 150000.
Tax with Old Tax regime: Rs 54,101 (considering standard deduction 50000 + Prof Tax 2400 + 80C 150000)
Tax with new Tax regime: Rs 62,400
Individual must select Old Tax regime as benifit is Rs 8,299
Example 3
Individual tax payer below age 60 having 15 lac salary makes 80C investement of 150000 with no home loan.
Tax with Old Tax regime: Rs 2,09,851 (considering standard deduction 50000 + Prof Tax 2400 + 80C 150000)
Tax with new Tax regime: Rs 1,95,400
Individual must select New Tax regime as benifit is Rs 14,851
Example 4
Individual tax payer below age 60 having 15 lac salary makes 80C investement of 150000 with home loan.
Tax with Old Tax regime: Rs 1,47,451 (considering standard deduction 50000 + Prof Tax 2400 + 80C 150000 + Home loan interest 2,00,000)
Tax with new Tax regime: Rs 1,95,400
Individual must select Old Tax regime as benifit is Rs 47,549
From above example it must be clear that in case you have amount to invest for 80C, mediclaim and have home loan, Old Tax regime is beneficial.
To make claer selection
- Know your salary
- Calculate all possible deductions
- Go to online tax regime calculators with these figures
- Find you tax with old and new tax regimes
- Make a Tax regime selection between Old or New.
Hope this blog has enabled you to make smart Tax regime selection. Please post your comments to improve this blog. You can also reach me at mihir.sdoshi@gmail.com.
Learn more on investing at Finology.
Thanks
Mihir
Learn more on investing at Finology.
Thanks
Mihir
