The citizens can choose between the old and new tax regime. However, before selecting a tax regime, a taxpayer needs to calculate his/her tax liability in both regimes. Therefore, he/she will know which tax regime can help him/her save tax.
If you are confused between both the tax regimes, then read this article to understand which regime can be more beneficial for you.
In Budget 2020, Nirmala Sitharaman, the finance minister of India, introduced a new tax regime. Under the new tax regime, the income tax slab is lower. However, if a taxpayer selects this regime, then he/she must forgo most of the exemptions and deductions. But a person can choose the old tax regime if he/she doesn’t want to forgo the exemptions and deductions. However, the tax rates in the old tax regime are higher.
Old Tax Regime
Income Tax Slab for People Below 60 Years of Age-
Annual Income |
Tax Rate |
Up to Rs. 2.5 Lakhs |
0 |
Between Rs. 2.5 Lakhs and Rs. 5 Lakhs |
5% |
Between Rs. 5 Lakhs and Rs. 10 Lakhs |
20% |
Above Rs. 10 Lakhs |
30% |
Income Tax Slab for People Between 60-80 Years of Age-
Annual Income |
Tax Rate |
Up to Rs. 3 Lakhs |
0 |
Between Rs. 3 Lakhs and Rs. 5 Lakhs |
5% |
Between Rs. 5 Lakhs and Rs. 10 Lakhs |
20% |
Above Rs. 10 Lakhs |
30% |
Income Tax Slab for People Above 80 Years of Age-
Annual Income |
Tax Rate |
Up to Rs. 5 Lakhs |
0 |
Between Rs. 5 Lakhs and Rs. 10 Lakhs |
20% |
Above Rs. 10 Lakhs |
30% |
New Tax Regime
Annual Income |
Tax Rate |
Up to Rs. 2.5 Lakhs |
0 |
Between Rs. 2.5 Lakhs and Rs. 5 Lakhs |
5% |
Between Rs. 5 Lakhs and Rs. 7.5 Lakhs |
10% |
Between Rs. 7.5 Lakhs and Rs. 10 Lakhs |
15% |
Between Rs. 10 Lakhs and Rs. 12.5 Lakhs |
20% |
Between Rs. 12.5 Lakhs and Rs. 15 Lakhs |
25% |
Above Rs. 15 Lakhs |
30% |
People who select this regime will have to forgo most of the exemptions and deductions. Some of the exemptions and deductions not allowed in the new tax regime are-
- House rent allowance will not be allowed.
- Leave travel allowance can’t be claimed if a person chooses the new tax regime.
- The standard deduction of Rs. 50,000 can’t be availed by the taxpayer.
- Most deductions under Section 80C will not be allowed.
- Tax deductions under Section 80D can’t be availed.
There are some exemptions and deductions that can be availed if a person selects the new tax regime.
- Withdrawal from NPS on maturity or premature closure up to 40% of the amount received will be tax-free.
- The contribution made by the employer to NPS up to 10% of the basic salary and dearness allowance will also be tax-free.
In order to save tax, you need to calculate your tax liability based on both the regimes. You need to understand if your exemptions and deductions can help you lower your tax liability. Furthermore, you should consider the new tax regime if you can forgo your exemptions and deductions as it can help you pay tax at lower rates.