Old versus New Structure Income tax, FY 20-21, AY 21-22

New income tax Regime: What should I Choose?

New income tax Regime: What should i Choose?

This is a common question I have been getting from salaried employees who have to choose between old and new regime and declare to their employers for the FY 20-21

* New Simplified Personal Income Tax Regime for Individual Taxpayers

Income Bracket Tax Rate
5L – 7.5L 10%
7.5L – 10L 15%
10L – 12.5L 20%
12.5L – 15L 25%
Above 15L 30%

 

Old Structure :

Income Bracket Tax Rate
5L – 7.5L 20%
7.5L – 10L 20%
10L – 12.5L 30%
12.5L – 15L 30%
Above 15L 30%

In new structure you cannot take benefit for the following items-

  1. Sec 80C – PF, ELSS
  2. Home Loan Interest
  3. NPS
  4. Standard Deduction
  5. HRA
  6. Medical Insurance
  7. LTA And many others! So choose wisely!

Income Tax Comparison to help decide between Old tax structure or New Tax Structure!!!!

New Regime
Gross Salary and Bonus (without deductions & exemptions) 40,00,000
Income tax payable 9,25,000
Education Cess @ 4% 37,000
Total 9,62,000
Per month deduction 80,167
Old Regime
Gross Salary & Bonus 40,00,000
Less : Deduction
Education Allowance 2,400
Standard Deduction 50,000
House Rent Allowance
Home Loan Interest 2,00,000
80C 1,50,000
Taxable Income (post deductions & exemptions) 35,97,600
Income tax payable 8,91,780
Education Cess @ 4% 35,671
Total 9,27,451
Per month deduction 77,282

 

Here are some points to help you understand what to choose. 

  1. All salaried employees are eligible for standard deduction of 50K. Including this — if your deductions and exemptions cross 2.5L –old regime is beneficial.
  2. If your income is below 12.5L and your deductions + exemptions cross 1.5L (eg: invest in 80C – ELSS / Insurance etc )you benefit in old regime
  3. If your income is > 12.5L and your deductions + exemptions cross 2.5L (Lets say you pay Home loan interest of about 1.5L + 80C of 1.5L , or pay rent and claim HRA of about 1L and have 80C investments of 1.5L) you benefit from the Old regime.
  4. The New regime would suit those who do not claim deductions / exemptions
  5. Non Salaried sr citizens drawing pension and not claiming deductions may benefit from new regime
  6. Sr Citizens with Interest Income investing in 80C instruments 1.5L should go for Old regime
  7. Anyone having Home loan interest and have investments in 80C+80D (Medical) – Old regime is beneficial
  8. Salaried – Anyone paying rent if claiming HRA and have investments in 80C+80D(Medical) – Old regime is better
  9. No Changes in Surcharges for > 50L – If you are borderline (just over threshold case) again makes sense to choose Old regime
  10. You can change from Old to New and Vice Versa depending on your case each year (As per CBDT… )
  11. Default is Old Regime – In case you fail to declare to your employer

Hope that helps. Happy Investing.

Kapil

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