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-
- Sec 80C – PF, ELSS
- Home Loan Interest
- NPS
- Standard Deduction
- HRA
- Medical Insurance
- 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.
- All salaried employees are eligible for standard deduction of 50K. Including this — if your deductions and exemptions cross 2.5L –old regime is beneficial.
- 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
- 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.
- The New regime would suit those who do not claim deductions / exemptions
- Non Salaried sr citizens drawing pension and not claiming deductions may benefit from new regime
- Sr Citizens with Interest Income investing in 80C instruments 1.5L should go for Old regime
- Anyone having Home loan interest and have investments in 80C+80D (Medical) – Old regime is beneficial
- Salaried – Anyone paying rent if claiming HRA and have investments in 80C+80D(Medical) – Old regime is better
- No Changes in Surcharges for > 50L – If you are borderline (just over threshold case) again makes sense to choose Old regime
- You can change from Old to New and Vice Versa depending on your case each year (As per CBDT… )
- Default is Old Regime – In case you fail to declare to your employer
Hope that helps. Happy Investing.
Kapil
