It was certain on the part of government to bring some relief measures for taxpayers to curb the effect of economic slowdown which almost back lifted every sector of the economy. It was on expectations of the taxpayers and recommendations of the Finance Ministry that led the changes confirmed through the Finance Bill, 2020 where taxpayers were offered for an optional theme for taxation for FY 2020-21.
The optional taxation theme was proposed with assured exemption and reduction of tax outgo with some new tax slabs and exemptions for prescribed thresholds. The condition in addition was placed for the taxpayers to forgo some available deductions and exemptions as availed by them in the old regime. The short lived joy lifted when the Finance Minister Smt. Nirmala Sitharaman cleared that more than 70 exemptions and deductions shall be taken away if the new regime is opted.
So, the decision rests with people to choose the regime from which they’ll be benefitted the most!
Here , we have compared and concluded how your tax liability changes when you opt to prefer new tax regime over the old regime.
Case I – When income is up to 5 lakhs
| Net income range | Salary | Business | Salary | Business |
| OLD | NEW | |||
| Income | 500000.00 | 500000.00 | 500000.00 | 500000.00 |
| Deductions/exemptions:- | ||||
| Standard deduction | 50000.00 | NA | NA | NA |
| Interest of housing loan u/s 24 | 200000.00 | 200000.00 | NA | NA |
| Deductions under chapter vi a:- | ||||
| 80C | 150000.00 | 150000.00 | NA | NA |
| 80D | 25000.00 | 25000.00 | NA | NA |
| Taxable income | 75000.00 | 125000.00 | 500000.00 | 500000.00 |
| Gross tax liability (refer note below) | 0.00 | 0.00 | 12500.00 | 12500.00 |
| *less-rebate (tax liability or 12500 whichever is less) | 0.00 | 0.00 | 12500.00 | 12500.00 |
| Net tax liability | 0.00 | 0.00 | 0.00 | 0.00 |
Rebate is only available if taxable income is upto Rs 5 lakhs
| Slab rate | OLD | Slab rate | NEW | ||
| Salary | Business | Salary | Business | ||
| Upto 2.5 | 0.00 | 0.00 | Upto 2.5 | 0.00 | 0.00 |
| 2.5 to 5 @ 5% | 0.00 | 0.00 | 2.5 to 5 @ 5% | 12500.00 | 12500.00 |
| Total | 0.00 | 0.00 | 12500.00 | 12500.00 | |
Case II – When income is up to 7.5 lakhs
| Net income range | Salary | Business | Salary | Business |
| OLD | NEW | |||
| 750000.00 | 750000.00 | 750000.00 | 750000.00 | |
| Deductions/exemptions:- | ||||
| Standard deduction | 50000.00 | NA | NA | NA |
| Interest of housing loan u/s 24 | 200000.00 | 200000.00 | NA | NA |
| Deductions under chapter vi a:- | ||||
| 80C | 150000.00 | 150000.00 | NA | NA |
| 80D | 25000.00 | 25000.00 | NA | NA |
| Taxable income | 325000.00 | 375000.00 | 750000.00 | 750000.00 |
| Gross tax liability (refer note below) | 3750.00 | 6250.00 | 37500.00 | 37500.00 |
| *Less-rebate (tax liability or 12500 whichever is less) | 3750.00 | 6250.00 | 0.00 | 0.00 |
| Net tax liability | 0.00 | 0.00 | 37500.00 | 37500.00 |
| Add: Ed. cess @ 4% | 0.00 | 0.00 | 1500.00 | 1500.00 |
| 0.00 | 0.00 | 39000.00 | 39000.00 | |
Rebate is only be available, if taxable income is upto Rs 5 lakh
| Slab rate | OLD | Slab rate | NEW | ||
| Salary | Business | Salary | Business | ||
| Upto 2.5 | 0.00 | 0.00 | Upto 2.5 | 0.00 | 0.00 |
| 2.5 to 5 @ 5% | 3750.00 | 6250.00 | 2.5 to 5 @ 5% | 12500.00 | 12500.00 |
| 5 to 10 @ 20% | 5 to 7.5 @ 10% | 25000.00 | 25000.00 | ||
| Total | 3750.00 | 6250.00 | 37500.00 | 37500.00 | |
Case III – When income is up to 10 lakhs
| Net income range | Salary | business | Salary | business |
| OLD | NEW | |||
| 1000000.00 | 1000000.00 | 1000000.00 | 1000000.00 | |
| Deductions/exemptions:- | ||||
| Standard deduction | 50000.00 | NA | NA | NA |
| Interest of housing loan u/s 24 | 200000.00 | 200000.00 | NA | NA |
| Deductions under chapter vi a:- | ||||
| 80C | 150000.00 | 150000.00 | NA | NA |
| 80D | 25000.00 | 25000.00 | NA | NA |
| Taxable income | 575000.00 | 625000.00 | 1000000.00 | 1000000.00 |
| Gross tax liability (refer note below) | 27500.00 | 37500.00 | 75000.00 | 75000.00 |
| *Less-rebate (tax liability or 12500 whichever is less) | 0.00 | 0.00 | 0.00 | 0.00 |
| Net tax liability | 27500.00 | 37500.00 | 75000.00 | 75000.00 |
| Add: Ed. cess @ 4% | 1100.00 | 1500.00 | 3000.00 | 3000.00 |
| 28600.00 | 39000.00 | 78000.00 | 78000.00 | |
Rebate is only be available, if taxable income is upto 5 lakh
| Slab rate | OLD | Slab rate | NEW | ||
| Salary | Business | Salary | Business | ||
| Upto 2.5 | 0.00 | 0.00 | Upto 2.5 | 0.00 | 0.00 |
| 2.5 to 5 @ 5% | 12500.00 | 12500.00 | 2.5 to 5 @ 5% | 12500.00 | 12500.00 |
| 5 to 10 @ 20% | 15000.00 | 25000.00 | 5 to 7.5 @ 10% | 25000.00 | 25000.00 |
| 7.5 to 10 @ 15% | 37500.00 | 37500.00 | |||
| Total | 27500.00 | 37500.00 | 75000.00 | 75000.00 | |
Case IV – When income is up to 12.5 lakhs
| Net income range | Salary | Business | Salary | Business |
| OLD | NEW | |||
| 1250000.00 | 1250000.00 | 1250000.00 | 1250000.00 | |
| Deductions/exemptions:- | ||||
| Standard deduction | 50000.00 | NA | NA | NA |
| Interest of housing loan u/s 24 | 200000.00 | 200000.00 | NA | NA |
| Deductions under chapter vi a:- | ||||
| 80C | 150000.00 | 150000.00 | NA | NA |
| 80D | 25000.00 | 25000.00 | NA | NA |
| Taxable income | 825000.00 | 875000.00 | 1250000.00 | 1250000.00 |
| Gross tax liability (refer note below) | 77500.00 | 87500.00 | 125000.00 | 125000.00 |
| *Less-rebate (tax liability or 12500 whichever is less) | 0.00 | 0.00 | 0.00 | 0.00 |
| Net tax liability | 77500.00 | 87500.00 | 125000.00 | 125000.00 |
| Add: Ed. cess @ 4% | 3100.00 | 3500.00 | 5000.00 | 5000.00 |
| 80600.00 | 91000.00 | 130000.00 | 130000.00 | |
Rebate is only be available, if taxable income is uptoRs 5 lakh
| Slab rate | OLD | Slab rate | NEW | ||
| Salary | Business | Salary | Business | ||
| Upto 2.5 | 0.00 | 0.00 | Upto 2.5 | 0.00 | 0.00 |
| 2.5 to 5 @ 5% | 12500.00 | 12500.00 | 2.5 to 5 @ 5% | 12500.00 | 12500.00 |
| 5 to 10 @ 20% | 65000.00 | 75000.00 | 5 to 7.5 @ 10% | 25000.00 | 25000.00 |
| Above 10 @ 30% | 7.5 to 10 @ 15% | 37500.00 | 37500.00 | ||
| 10 to 12.5 @ 20% | 50000.00 | 50000.00 | |||
| Total | 77500.00 | 87500.00 | 125000.00 | 125000.00 | |
Case V – When income is up to 15 lakhs
| Net income range | Salary | business | Salary | business |
| OLD | NEW | |||
| 1500000.00 | 1500000.00 | 1500000.00 | 1500000.00 | |
| Deductions/exemptions:- | ||||
| Standard deduction | 50000.00 | NA | NA | NA |
| Interest of housing loan u/s 24 | 200000.00 | 200000.00 | NA | NA |
| Deductions under chapter vi a:- | ||||
| 80C | 150000.00 | 150000.00 | NA | NA |
| 80D | 25000.00 | 25000.00 | NA | NA |
| Taxable income | 1075000.00 | 1125000.00 | 1500000.00 | 1500000.00 |
| Gross tax liability (refer note below) | 135000.00 | 150000.00 | 187500.00 | 187500.00 |
| *Less-rebate (tax liability or 12500 whichever is less) | 0.00 | 0.00 | 0.00 | 0.00 |
| Net tax liability | 135000.00 | 150000.00 | 187500.00 | 187500.00 |
| Add: Ed. cess @ 4% | 5400.00 | 6000.00 | 7500.00 | 7500.00 |
| 140400.00 | 156000.00 | 195000.00 | 195000.00 | |
Rebate is only be available , if taxable income is uptoRs 5 lakh
| Slab rate | OLD | Slab rate | NEW | ||
| Salary | Business | Salary | Business | ||
| Upto 2.5 | 0.00 | 0.00 | Upto 2.5 | 0.00 | 0.00 |
| 2.5 to 5 @ 5% | 12500.00 | 12500.00 | 2.5 to 5 @ 5% | 12500.00 | 12500.00 |
| 5 to 10 @ 20% | 100000.00 | 100000.00 | 5 to 7.5 @ 10% | 25000.00 | 25000.00 |
| Above 10 @ 30% | 22500.00 | 37500.00 | 7.5 to 10 @ 15% | 37500.00 | 37500.00 |
| 10 to 12.5 @ 20% | 50000.00 | 50000.00 | |||
| 12.5 to 15 @ 25% | 62500.00 | 62500.00 | |||
| Total | 135000.00 | 150000.00 | 187500.00 | 187500.00 | |
Case VI – When income is up to 17.5 lakhs
| Net income range | Salary | Business | Salary | Business |
| OLD | NEW | |||
| 1750000.00 | 1750000.00 | 1750000.00 | 1750000.00 | |
| Deductions/exemptions:- | ||||
| Standard deduction | 50000.00 | NA | NA | NA |
| Interest of housing loan u/s 24 | 200000.00 | 200000.00 | NA | NA |
| Deductions under chapter vi a:- | ||||
| 80C | 150000.00 | 150000.00 | NA | NA |
| 80D | 25000.00 | 25000.00 | NA | NA |
| Taxable income | 1325000.00 | 1375000.00 | 1750000.00 | 1750000.00 |
| Gross tax liability (refer note below) | 210000.00 | 225000.00 | 262500.00 | 262500.00 |
| *Less-rebate (tax liability or 12500 whichever is less) | 0.00 | 0.00 | 0.00 | 0.00 |
| Net tax liability | 210000.00 | 225000.00 | 262500.00 | 262500.00 |
| Add: Ed. cess @ 4% | 8400.00 | 9000.00 | 10500.00 | 10500.00 |
| 218400.00 | 234000.00 | 273000.00 | 273000.00 | |
Rebate is only be available , if taxable income is uptoRs 5 lakh
| Slab rate | OLD | Slab rate | NEW | ||
| Salary | Business | Salary | Business | ||
| Upto 2.5 | 0.00 | 0.00 | Upto 2.5 | 0.00 | 0.00 |
| 2.5 to 5 @ 5% | 12500.00 | 12500.00 | 2.5 to 5 @ 5% | 12500.00 | 12500.00 |
| 5 to 10 @ 20% | 100000.00 | 100000.00 | 5 to 7.5 @ 10% | 25000.00 | 25000.00 |
| Above 10 @ 30% | 97500.00 | 112500.00 | 7.5 to 10 @ 15% | 37500.00 | 37500.00 |
| 10 to 12.5 @ 20% | 50000.00 | 50000.00 | |||
| 12.5 to 15 @ 25% | 62500.00 | 62500.00 | |||
| Above 15 @ 30% | 75000.00 | 75000.00 | |||
| Total | 210000.00 | 225000.00 | 262500.00 | 262500.00 | |
Case VII – When income is up to 20 lakhs
| Net income range | Salary | Business | Salary | Business |
| OLD | NEW | |||
| 2000000.00 | 2000000.00 | 2000000.00 | 2000000.00 | |
| Deductions/exemptions:- | ||||
| Standard deduction | 50000.00 | NA | NA | NA |
| Interest of housing loan u/s 24 | 200000.00 | 200000.00 | NA | NA |
| Deductions under chapter vi a:- | ||||
| 80C | 150000.00 | 150000.00 | NA | NA |
| 80D | 25000.00 | 25000.00 | NA | NA |
| Taxable income | 1575000.00 | 1625000.00 | 2000000.00 | 2000000.00 |
| Gross tax liability (refer note below) | 285000.00 | 300000.00 | 337500.00 | 337500.00 |
| *Less-rebate (tax liability or 12500 whichever is less) | 0.00 | 0.00 | 0.00 | 0.00 |
| Net tax liability | 285000.00 | 300000.00 | 337500.00 | 337500.00 |
| Add: Ed. cess @ 4% | 11400.00 | 12000.00 | 13500.00 | 13500.00 |
| 296400.00 | 312000.00 | 351000.00 | 351000.00 | |
Rebate is only be available , if taxable income is uptoRs 5 lakh
| Slab rate | OLD | Slab rate | NEW | ||
| Salary | Business | Salary | Business | ||
| Upto 2.5 | 0.00 | 0.00 | Upto 2.5 | 0.00 | 0.00 |
| 2.5 to 5 @ 5% | 12500.00 | 12500.00 | 2.5 to 5 @ 5% | 12500.00 | 12500.00 |
| 5 to 10 @ 20% | 100000.00 | 100000.00 | 5 to 7.5 @ 10% | 25000.00 | 25000.00 |
| Above 10 @ 30% | 172500.00 | 187500.00 | 7.5 to 10 @ 15% | 37500.00 | 37500.00 |
| 10 to 12.5 @ 20% | 50000.00 | 50000.00 | |||
| 12.5 to 15 @ 25% | 62500.00 | 62500.00 | |||
| Above 15 @ 30% | 150000.00 | 150000.00 | |||
| Total | 285000.00 | 300000.00 | 337500.00 | 337500.00 | |
Why Consultants at TaxReturnWala.com suggest use of Old regime over the New Optional Tax regime?
We being a team of leading tax practitioners and corporate consultants have viewed for the benefits and hitches of both tax regimes. In conclusion to above figures and holding an objective to maximum tax savings of our clients, we would rather suggest use of the old tax regime where the possibility of tax saving is much wider with the available deductions and exemptions.
Besides, The New Tax Regime has proposed lower income-tax rates, for income segments up to Rs 15 lakh. But you need to remember that the proposed lower tax rates will be applicable only if you are willing to give up exemptions and deductions available under various provisions of the Income-tax Act, 1961. So just in case you have not made any investments for which you can claim exemptions or you are not having exempted investments equivalent to the maximum provided as benefit then you need to get a customized calculation made under both scenarios and then decide.
This means that when you choose the New Tax Regime, you will have to forgo some exemptions [such as Leave Travel Allowance (LTA), House Rent Allowance (HRA), etc] and deductions available under chapter VI A of the Act that grant deductions under Section 80 [such as 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG, 80GGA, 80GGC, etc].So we would suggest to keep this things to be in mind while opting the regime.
Also, the above verdict on use of any particular tax regime out of both might differ in terms of different income sources, investments made and multiple other factors.
If not satisfied by above comparison, get a quick tax analysis done from our professionals and maximize your tax savings.
Email us at info@taxreturnwala.com