New Slab v/s old slab – Income Tax

So the Union Budget 2020 has led to so many expectations (positive ofcourse) for all the tax assessees in terms of one of the basic amendment- the main one for which we all were waiting for since everytime i guess…

Changes in Income Tax Slab rates

So here comes the New slab for Individuals * but with certain T&C (ofcourse)-

But before discussing the slab rates I think we all must know certain important points regarding the same.

a) This slab is for INDIVIDUAL only.

b) This slab is OPTIONAL.

c) The people opting this slab shall not be entitled to around 70 deductions and exemptions (BIG LOSS)

d) Option to be exercised on or before due date of ITR filing for AY 2021-22. (BE FAST IN CALCULATING)

e) Assessees having Business income shall have the option to withdraw from the new slab only for once. (PLEASE THINK BEFORE OPTING)

f) Only 2 deductions are allowed-
 Section 80CCD(2) [i.e., employer’s contribution on account of an employee in a notified pension scheme] and Section 80JJAA [i.e. for new employment] 

Now we shall discuss the rates offered by New Slab and compare the same with old rates-

Income slabs (Rs)Tax Rate(Old Regime)Tax Rate(New Regime – devoid of exemptions & deductions)
Up to 2.5 lakhNilNil
2.5-5 lakh5%5%
5-7.5 lakh20%10%
7.5-10 lakh20%15%
10-12.5 lakh30%20%
12.5-15 lakh30%25%
Above 15 lakh30%30%


Now the most important question arises- Which one to choose??

Lets take an example for better understanding-

Example No.1-

ParticularsOld Tax Regime (Rs)New Tax Regime (Rs)
Gross Income1,200,0001,200,000
Deductions:
U/Sec: 80C150,000
U/Sec: 80D25,000
U/Sec: 24(b)75,000
Taxable Income950,0001,200,000
Tax Slab (OLD)
0 to 2.5 Lakh
2.5 to 5 Lakh @ 5%12,500
5 Lakh to 10 Lakh @ 20%90,000
> 10 Lakh @ 30%
Tax Slab (NEW)
0 to 5 Lakh
2.5 to 5 Lakh @ 5%12,500
5 to 7.5 Lakh @ 10%25,000
7.5 Lakh to 10 Lakh @ 15%37,500
10 Lakh to 12.5 Lakh @ 20%40,000
12.5 Lakh to 15 Lakh @ 25%
> 15 Lakh @ 30%
Income Tax102,500115,000
Cess @ 4%4,1004,600
Total Tax payable106,600119,600

Example No.2-

ParticularsOld Tax Regime (Rs)New Tax Regime (Rs)
Gross Income700000700000
Deductions:
U/Sec: 80C150,000
U/Sec: 80D25,000
U/Sec: 24(b)75,000
Taxable Income450000700000
Tax Slab (OLD)
0 to 2.5 Lakh
2.5 to 5 Lakh @ 5%10000
5 Lakh to 10 Lakh @ 20%
> 10 Lakh @ 30%
Tax Slab (NEW)
0 to 5 Lakh
2.5 to 5 Lakh @ 5%12,500
5 to 7.5 Lakh @ 10%20000
7.5 Lakh to 10 Lakh @ 15%
10 Lakh to 12.5 Lakh @ 20%
12.5 Lakh to 15 Lakh @ 25%
> 15 Lakh @ 30%
Income Tax1000032500
Cess @ 4%4001300
Total Tax Outgo1040033800

Example No.3-

ParticularsOld Tax Regime (Rs)New Tax Regime (Rs)
Gross Income500000500000
Deductions:
U/Sec: 80C
U/Sec: 80D
U/Sec: 24(b)
Taxable Income500000500000
Tax Slab (OLD)
0 to 2.5 Lakh
2.5 to 5 Lakh @ 5%12,500
5 Lakh to 10 Lakh @ 20%
> 10 Lakh @ 30%
Tax Slab (NEW)
0 to 5 Lakh
2.5 to 5 Lakh @ 5%12,500
5 to 7.5 Lakh @ 10%
7.5 Lakh to 10 Lakh @ 15%
10 Lakh to 12.5 Lakh @ 20%
12.5 Lakh to 15 Lakh @ 25%
> 15 Lakh @ 30%
Income Tax12,50012,500
Cess @ 4%5,005,00
Total Tax Outgo13,00013,000

So basically it seems that if we are falling in high income group and have invested in Tax saving schemes then we should clearly go for Old slab.

While for individuals in the middle-income group, earning a gross income of say Rs 4-5 lakh; the new regime may prove advantageous. (with no deductions and tax savings available)

If you are looking to fulfil your financial obligations, namely – wealth creation through investments in tax-saving instruments; paying premiums to address insurance needs (life and health); paying children’s tuition fees; paying Equated Monthly Instalments (EMIs) of an education loan; buying a house with a home loan; and so on, the older regime still works in the interest of your financial wellbeing.

I hope this reading will be useful for you.

Thanks

CA Tanvi Gupta
ACA , DISA, Bcom

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