Old vs new income tax regime

In this post, we will discuss the difference between the Old vs New Income tax regime. The Budget has proposed a new alternate income tax structure for the taxpayers.

Introduction

Taxpayers wanted the tax structure to be simplified and their income tax to come down. But it has shattered a lot of hopes.

The taxpayers who opt for the new regime need to forego most of the exemptions and deductions availed in the previous tax regime.

The deductions and exemptions under Chapter-VI includes HRA, investments under Section 80C, NPS contribution, medical insurance premium and Leave travel allowance (LTA)

New tax slab and rates

Old tax rate ANNUAL INCOME new tax rate
Nil Up to Rs.2.5 lakh Nil
5% Rs.2.5 lakh to Rs.5 lakh 5%
20% Rs.5 lakh to Rs.7.5 lakh 10%
Rs.7.5 lakh to Rs.10 lakh 15%
30% Rs.10 lakh to Rs.12.5 lakh 20%
Rs.12.5 lakh to Rs.15 lakh 25%
Above Rs.15 lakh 30%

Is it beneficial or not?

The tax has always been confusing for an average Indian. With 3 more tax slabs, it has made more confusing.

You don’t have to do a detailed calculation to estimate the tax liability under the new tax slabs. Anyone claiming tax exemptions and deductions of more than Rs 2.5 lakh in a year will not gain from the new tax structure.

This threshold of Rs 2.5 lakh includes the standard deduction of Rs 50,000 for which no investment is required. All salaried taxpayers are eligible, which leaves only an additional deduction of Rs 2 lakh. Of this, Rs 1.5 lakh is taken care of by Section 80C investments.

The average taxpayer also claims an exemption for HRA or claims deduction for the interest paid on a home loan. There are other deductions such as the contribution to the NPS, the interest on education loans, treatment of illness, and disabilities. There is also the small but widely claimed exemption of up to Rs 10,000 for savings bank interest under Section 80TTA.

What goes out and What stays

What goes out

The exemptions and deductions you will not be eligible in the new tax regime are:

  • Standard deduction – Rs 50,000.
  • House rent allowance – depends on salary structure and rent paid.
  • Housing loan interest – Rs 3.5 lakh for affordable housing, Rs 2 lakh for others.
  • Investments under Sec 80C – Rs 1.5 lakh.
  • Leave travel allowance – Tax-free if claimed once in a block of two years.
  • NPS contribution – Rs 50,000.
  • Medical insurance premium – Rs 25,000 (Rs 50,000 for parents and senior citizens).
  • Savings bank interest – Rs 10,000 under Sec 80TTA
  • Interest income (for senior citizens) – Rs 50,000 under Sec 80TTBEducation loan interest – Interest paid for eight consecutive years.
  • Disability of self or dependent – Rs 75,000 to Rs 1.25 lakh depending on the disability.
  • Treatment of self or dependent for specified disease – Rs 40,000.

What stays

The list of exemptions the same as in the old tax regime are:

  • Standard deduction on rent – 30% of the rent received
  • Agricultural income -No limit
  • Income from life insurance – If insurance cover is 10 times the annualized premium
  • Retrenchment compensation – Rs 5 lakh
  • VRS proceeds – Rs 5 lakh
  • Leave encashment on retirement – Rs 3 lakh (No limit for govt. workers)

With that, we have come to the end of this post. Share your queries with us in the comment section below.