Existing Income Tax Regime v/s New Income Tax Regime
In the Budget 2020, the Government of India has introduced a new tax regime under section 115BAC giving an option to Individuals and HUF Taxpayers to pay income tax at lower rates. The new scheme is applicable for income earned for FY 2020-21 (AY 2021-22). The Ministry of Finance has removed around 70 tax deductions & exemptions while proposing the new tax regime.
Also, as of now, individuals can choose the new regime where the rates are lower but there are no exemptions or deduction or choose to continue with the regular old regime, where exemptions and rebates can be claimed and applicable tax as per the income slab will be levied. But how does one decide which regime to go for? Let’s find out!
To assist you in making the right choice, the following table shows the tax rates of both the regimes. Please study the information carefully and choose the right tax regime for you.
Income Slabs (INR) | Income Tax Rates (Excluding Surcharge & Cess) | |
Existing Tax Regime | New Tax Regime | |
| Up to 250,000 | Nil | Nil |
| 250,001 –500,000 | 5% | 5% |
| 500,001 –750,000 | 20% | 10% |
| 750,001 –1,000,000 | 20% | 15% |
| 1,000,001 –1,250,000 | 30% | 20% |
| 1,250,001 –1,500,000 | 30% | 25% |
| 1,500,000 –5,000,000 | 30% | 30% |
| 5,000,001 –10,000,000 | 30% | 30% |
| 10,000,001 –20,000,000 | 30% | 30% |
| 20,000,001 –50,000,000 | 30% | 30% |
| 50,000,001 and above | 30% | 30% |
Additional Info:
- By default, the proof submitted last year is carried forward as investment declarations for the new financial year. You can change it before the cut-off date.
- If you have joined the company before 1st April 2021, and don’t choose a tax regime, the Old tax regime is considered by default.
- If you are a new joiner in the current month, your default Regime would be the OLD Regime.
- Employee needs to provide an intimation during the year as regards his/her intention to opt for the new regime.
- If you have provided such intimation to move towards New Tax Regime, the same cannot be changed again during the year.
- Such option is for the limited purpose of TDS to be done by the employer. The employee can always change this option when he/she is filing the return of income for the year.
The following table shows the Declaration options available in the Investment Declaration section depending on the regime you choose
List of exemptions/deductions and their applicability in both tax regimes | ||
Deduction Type | Existing Tax Regime | New Tax Regime |
| Standard Deduction of Rs. 50000 | Yes | No |
| Professional Tax deducted from Salary | Yes | No |
| Exemptions under Section 10 & 17 | ||
| House Rent Allowance | Yes | No |
| Gratuity | Yes | Yes |
| Leave Encashment | Yes | Yes |
| Children Education Allowance | Yes | No |
| Leave Travel Allowance | Yes | No |
| Uniform Allowance | Yes | No |
| Housing/Other Income | ||
| Other Income (Bank Interest, NSC Interest etc.) | Yes | Yes |
| Interest on Housing Loan – Self Occupied | Yes | No |
| Income from House Property Income – Let Out | Yes | Yes |
| Loss from House Property Income – Let Out | Yes | No |
| Interest on Housing Loan – Additional Exemption (80EE & 80EEA) | Yes | No |
| Chapter VI-A | ||
| Medical Insurance Premium (Sec 80D) | Yes | No |
| Deduction towards Handicapped Dependents (Sec 80DD) | Yes | No |
| Deduction towards treatment of Specified Diseases (Sec 80DDB) | Yes | No |
| Interest Paid on Higher Education Loan (Sec 80E) | Yes | No |
| Deduction for Permanent Disability (Sec 80U) | Yes | No |
| Employer’s contribution toward NPS (up to 10%)(u/s 80CCD) | Yes | Yes |
| Interest on deposits in Saving bank accounts (80TTA) | Yes | No |
| Deduction in respect of Interest income (80TTB) for Senior Citizen | Yes | No |
| Exemption on Loan for Purchase of Electric Vehicles (80EEB) | Yes | No |
| Deductions Under 80C | ||
| Employees Provident Fund | Yes | No |
| Voluntary Provident Fund | Yes | No |
| Public Provident Fund | Yes | No |
| Children’s Education – Tuition Fees | Yes | No |
| National Savings Certificate (NSC) | Yes | No |
| Life Insurance Premium | Yes | No |
| Housing Loan Principal Repayment | Yes | No |
| Sukanya Samriddhi Scheme | Yes | No |
| Accrued NSC Interest | Yes | No |
| Mutual Funds / ULIP | Yes | No |
| Deduction under Life Insurance Pension Scheme | Yes | No |
| Employees contribution towards NPS | Yes | No |
| Senior Citizens Savings Scheme | Yes | No |
| Tax Saver Fixed Deposits / Term Deposits / Senior Citizen Saving Scheme | Yes | No |
| Investment in Infrastructure /tax saving bonds | Yes | No |
The following table shows the impact of the flexible-benefit components on the two tax regimes
Flexi Benefits | Tax Free | |
Pay Components | Existing Tax Regime | New Tax Regime |
| Leave Travel Allowance | Yes | No |
| Books Period & Sub Reimbursement | Yes | No |
| Car Maint & Fuel Reimbursement | Yes | Yes |
| Gadgets Reimbursement | Yes | Yes |
| Internet Reimbursement | Yes | Yes |
| Furniture | Yes | Yes |
| Driver Reimbursement | Yes | Yes |
| Travel Accessory & Reimbursement | Yes | No |
| Vehicle Reimbursement | Yes | Yes |
| Professional Development | Yes | No |
| Gadget Allowance | Yes | Yes |
How Will I know Which Scheme Is More Beneficial For Me?
Both systems have their own sets of pros and cons. The old system has many exemptions and deductions under numerous sections – availing a few of these required people to invest in tax saving investment options, which helped inculcate a good habit of investing. On the other hand, the new system gives people more flexibility and tries to simplify the process. If you are someone who was claiming a lot of deductions under the old regime, you can probably save better sticking with the same system, as per the calculations. If you weren’t making any tax saving investments or claiming any deductions earlier too, then maybe the new system may prove beneficial.It also varies based on which slab you are in as well. However, since the system is new, it makes sense to consult a competent tax expert who can suggest the optimal tax saving route for you.
Note that, Individuals who have income from business or profession cannot switch between the new and old tax regimes every year. If they opt for the new taxation regime, such individuals get only one chance in their lifetime to go back to the old regime. Also, once you switch back to existing tax regime, you will not be able to opt for new tax regime unless income from business of profession ceases to exist.
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