Old vs New
Income Tax Regime: Which one is better & and at what level of income should
you switch Regime?
-CA Dhruv Anand
Brief About
the Article:-
"Be
careful what you wish for, there's always a catch". -
These words
by Laurie Halse Anderson aptly apply to Indian Tax Payers today.
The budget
2020 saw the finance minister Nirmala Sitharaman announce a new tax regime with
more tax slabs & lower tax rates. This was long demanded by most taxpayers,
but it came with the catch of removal of all the deductions and exemptions
available. To add to this confusion, the finance minister gave taxpayers a
choice between the new regime and existing one, leaving it to them to decide
which they would like to opt for. All of these factors acting together, instead
of making the tax laws simpler, they are now more complex.
And if you
are wondering how to go about figuring out which regime you should opt for,
this blog answers that question for you.
New Vs Old Regime:-
As the tax liability and TDS would be different in the
Old and New Income Tax Regime, depending on gross income and amount of
tax-saving investments/deductions, selecting the right Regime is very important
to minimise the tax outgo.
Moreover, once selected, the Regime cannot be changed,
because according to the ordinance issued by the government, it is mandatory
for employees to choose the Income Tax Regime at the start of the year and the
same will be continued till the end of the year.
“Salaried employees can switch between old and new tax
regimes every year while other assessees can’t get back to the Old Regime, once
the ITR is filed under the New Regime.”
So, you need to know at which income level, which Regime
would be beneficial for you.
Along with your income, the amount of tax-saving
investments and deductions will determine your tax outgo under the Old and New
Regimes as there are higher numbers of tax slabs under the New Regime with
lower tax rates, but no tax-saving investments/ deductions are available.
Deductions Nil. Break Even Gross Income: Rs
5,00,000.
If you don’t
have any tax-saving investment/deduction, the New Regime will be beneficial for
income above Rs 5 lakh.
Deductions Rs 50,000. Break Even Gross Income: Rs 6,00,000.
For tax-saving investments/deductions of Rs 50,000 the break-even
income will be Rs 6 lakh, above which the New Regime will be beneficial.
Deductions Rs 75,000. Break Even Gross Income: Rs 6,50,000.
If your tax-saving investments/deductions are Rs 75,000,
the New Regime will be beneficial for income above Rs 6.5 lakh.
Deductions Rs 100,000. Break Even Gross Income: Rs 7,00,000.
On the other hand, the New Regime will be beneficial for
income above Rs 7 lakh, if your tax-saving investments/deductions are Rs 1
lakh.
Deductions Rs 150,000. Break Even Gross Income: Rs 8,50,000.
For tax-saving investments/deductions of Rs 1.5 lakh, the
New Regime will be beneficial only above the income level of Rs Income: Rs 8.5
Lakh.
Deductions Rs 200,000(80C+St Deductions). Break
Even Gross Income: Rs 12,25,000.
If your tax-saving investments/deductions are Rs 2 lakh,
the New Regime will be beneficial for you for income above Rs 12,25,000.
The New Regime would be beneficial only up to income
level of Rs 15 lakh, if you fail to match the tax-saving investments/deductions
up to Rs 2.5 Lakh.
Deductions Rs 250,000(80C+St Deductions+NPS). Break
Even Gross Income: Rs 15,00,000.
Above the break-even level of Rs 15 lakh annual income
and Rs 2.5 lakh annual tax-saving investments/deductions, the New Income Tax
Regime won’t have any advantage over the Old Regime.
So, if your tax-saving investments/deductions are above
Rs 2.5 lakh, the Old Income Tax Regime will only be beneficial for you, irrespective
of your level of income.
Conclusion :-
For Quick
Understanding refer the Table Given Below:-
Deductions
|
Income Levels
|
||||||||||||||
Less than 5 Lac
|
5 Lac
|
500000-599999
|
6 Lac
|
600001-649999
|
6.5 Lac
|
650001-699999
|
7 Lac
|
700001-849999
|
8.5 Lac
|
850001-1224999
|
12.25 Lac
|
1225001-1499999
|
15 Lac
|
Above 15 lakh
|
|
0.00
|
B.E
|
B.E
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
1-49,999
|
B.E
|
B.E
|
Old
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
50,000
|
B.E
|
B.E
|
Old
|
B.E
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
50000-74999
|
B.E
|
B.E
|
Old
|
Old
|
Old
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
75,000
|
B.E
|
B.E
|
Old
|
Old
|
Old
|
B.E
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
75001-99999
|
B.E
|
B.E
|
Old
|
Old
|
Old
|
Old
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
1,00,000
|
B.E
|
B.E
|
Old
|
Old
|
Old
|
Old
|
Old
|
B.E
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
100001-149999
|
B.E
|
B.E
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
New
|
New
|
New
|
New
|
New
|
New
|
New
|
1,50,000
|
B.E
|
B.E
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
B.E
|
New
|
New
|
New
|
New
|
New
|
150001-199999
|
B.E
|
B.E
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
New
|
New
|
New
|
New
|
New
|
2,00,000
|
B.E
|
B.E
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
B.E
|
New
|
New
|
New
|
200001-249999
|
B.E
|
B.E
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
New
|
New
|
New
|
2,50,000
|
B.E
|
B.E
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
B.E
|
B.E
|
Above 250000
|
B.E
|
B.E
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
Old
|
·
B.E
(Break Even) implies Tax computed is Equal in both Old & New Tax Regime
·
Old
implies Old Tax Regime Beneficial in the scenario
·
New
implies New Tax Regime Beneficial in the scenario.
For any further queries, clarifications, and suggestions, please feel free to contact the undersigned author or write to us at proadvisors02@gmail.com.
CA Dhruv Anand
Mobile - 8130782695, 8383824051
Email - dhruvanand02@gmail.com
No comments:
Post a Comment