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Income tax – old slab vs new slab

Finance minister Mrs. Nirmala Sitaraman introduced The Finance Bill 2020 in parliament on 01.01.2020 and given an option to taxpayers to pay income tax as per newly inserted section 115BAC (tax as per new regime) at reduced rate and without claiming various exemption and deduction like standard seduction, housing loan interest repayment, deduction for LIC, PPF etc. under section 80C and medical premium deduction under section 80D etc. However taxpayers has an option to not to choose new tax regime and pay tax as earlier (tax as per old regime) and claim all the exemption and deduction as mentioned above.

Tax Rates as per new regime as introduced by section 115BAC

Sl. No. Total Income Rate of Tax
1. Upto Rs 2,50,000 Nil
2. From Rs 2,50,001 to Rs 5,00,000 5%
3. From Rs 5,00,001 to Rs 7,50,000 10%
4. From Rs 7,50,001 to Rs 10,00,000 15%
5. From Rs 10,00,001 to Rs 12,50,000 20%
6. From Rs 12,50,001 to Rs 15,00,000 25%
7. Above Rs 15,00,000 30%

Tax Rates as per old regime if option under section 115BAC not exercised

Sl. No. Total Income Rate of Tax
1. Upto Rs 2,50,000 Nil
2. From Rs 2,50,001 to Rs 5,00,000 5%
3. From Rs 5,00,001 to Rs 10,00,000 20%
4. Above Rs 10,00,000 30%

Note: For if taxpayers age is 60 year or above but less than 80 years than basic exemption available is of Rs 300,000/- and if taxpayers age is 80 year or above than basic exemptions available is of Rs 500,000/-

Here is the quick comparison of tax payable under both the old and new tax regime:-

If taxpayer has invested Rs 150,000/- under section 80C for LIC, PPF etc. and Rs 25,000/- under section 80D for medical insurance premium and claiming standard deduction of Rs 50,000/-

Total Income Tax under old regime Tax under new regime Tax benefit/(loss) Better tax regime
250,000 Nil Nil NA Old/New
500,000 Nil Nil NA Old/New
750,000 17,500 37,500 (20,000) Old
10,00,000 67,500 75,000 (7,500) Old
12,50,000 120,000 125,000 (5,000) Old
15,00,000 195,000 187,500 7,500 New
17,50,000 270,000 262,500 7,500 New

If taxpayer has not invested for LIC, PPF and medical insurance premium and claiming only standard deduction of Rs 50,000/-

Total Income Tax under old regime Tax under new regime Tax benefit/(loss) Better tax regime
250,000 Nil Nil NA Old/New
500,000 Nil Nil NA Old/New
750,000 52,500 37,500 15,000 New
10,00,000 102,500 75,000 27,500 New
12,50,000 172,500 125,000 47,500 New
15,00,000 247,500 187,500 60,000 New
17,50,000 322,500 262,500 60,000 New

This tax benefit/(loss) will further increase if taxpayer is claiming benefits of other exemption and deduction like interest on housing loan, house rent allowance and interest on education loan etc.

Conclusion:-

From the above it can be fairly concluded that if taxpayer has not invested in LIC, PPF and medical insurance and has not claiming benefits of any other deduction or exemption like housing loan interest or education loan interest than new tax regime will be more beneficial.

Further on the other hand if taxpayer has invested in LIC, PPF etc. and claiming benefits of other deduction like housing loan interest or interest on education loan than old tax regime will be more beneficial.

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