Worried about Corona virus spreading in India? Buy Health Insurance and get coverage now. View Plans
Take informed decisions with IIFL Insurance:

Old Tax Brackets Vs New – Comparison

The new tax regime, announced by finance minister Smt Nirmala Sitharaman, under Budget 2020 introduced an increase in tax slabs along with reduced tax rates. However, the taxpayer soon realized that there was a catch. The deductions and exemptions available in the old tax regime were removed from the new one. Most taxpayers also felt a little confused with the option that they have been given to choose between the old tax regime or the new one. This freedom has left them a complex choice and they need to do old tax brackets Vs new tax brackets comparisons on their own.

So if you too are figuring out a way through the “old tax brackets Vs new”, read on to get some clarity about the same.

Old Tax Brackets Vs New:

As per the Indian tax system, taxability depends on factors such as the residential status of the individual, according to his presence in India during a financial year and the 10 preceding financial years

There can not be a one-size-fits-all, and as the tax is dependent on the earnings that you generate in a financial year, you first need to understand your own income. Whether you generate an income through your profession or your business or your freelance work or through any other source, you are required to pay a part of it to the government.

Let us take a look at the old and new tax rates and slabs.

New Tax Rates Tax Slab (INR) Old Tax Rates
Not Applicale Upto 2,50,000 Not Applicale
5% 2,50,000 – 5,00,000 5%
10% 5,00,000 – 7,50,000 20%
15% 7,50,000 – 10,00,000 20%
20% 10,00,000 – 12,50,000 30%
25% 12,50,000 – 15,00,000 30%

New Tax Bracket

In the new tax regime, there has been an increase in the number of tax slabs and there has been a decrease in the tax slab range of INR 15 lakhs and above. However, the deductions and exemptions would no longer be available in the new tax bracket.

Old Tax Bracket

The old tax bracket though has high tax rates, a number of options are available for the taxpayer. As per the Income Tax Act, for an Indian taxpayer, there are over 70 deductions and exemptions, that he can claim. These exemptions and deductions can help in lowering the taxable income, a few of them are:

  1. House rent allowance
  2. Mobile and internet reimbursement
  3. Uniform allowance
  4. Saving account interest
  5. ELSS (Equity Linked Saving Scheme)
  6. Employee provident fund
  7. Life insurance premium
  8. Public provident fund
  9. Principal and interest component of home loan
  10. Children tuition fees

 

The maximum deduction you can claim is INR 1.5 lakhs under Section 80C of the Income Tax Act, 1961.

Old Tax Brackets Vs New Tax Bracket

There really cannot be a single answer to the question, which tax bracket is better. The complexity of the system of taxes in India. In the first look, you may feel that the new bracket looks more taxpayer-friendly, however, keep in mind the devil lies in the details.

If you are trying to figure out if you choose the old tax bracket or the new one, the task may seem a bit complicated, however, doing the same in a systematic way would be helpful, let us see how:

Step 1: You first need to commute all the exemptions that you are going to avail of. You would be eligible for HRA if you are living in rented accommodation. You can also make use of tax-free components such as LTA, phone bills.
These components, however, will not be eligible for tax deductions under the new regime and would be taxable.

Step 2: Being a salaried employee, you can automatically get standard deductions of INR 50,000 and for the contribution that you make towards the EPF, Employee Provident Fund. you again need to keep in mind that such deductions would not be applicable in the new tax regime.

Step 3: These exemptions can then be subtracted from your salary. You would then be able to see your taxable income. You can also compare if you have to let go of them.

Calculation of Income Tax: Old Tax Brackets Vs New

Let us now see this example to calculate income tax on the salary income. Manish Verma is a college professor. He is 41 years old. His basic salary is Rs 15 lakhs a year. He pays a monthly house rent of Rs 30,000, i.e. Rs 3.6 lakhs per annum

We already know that income from salary includes basic salary, HRA, or house rent allowance, along with other allowances, some of which are eligible for an exemption of Income Tax. Here is Manish’s annual salary break-up:

  • A basic salary income of Rs 15 lakhs per annum
  • HRA of Rs 4 lakhs per annum
  • The LTA is Rs 20K
  • With a Special Allowance or Rs 2.85 lakhs
  • Taxpayer is categorised as an individual resident Indian

 

Nature Amount

(in Rs. lakhs)

Deductions

(in Rs. lakhs)

Taxable Income

(Old regime) WITH deductions

Taxable Income

(New regime)- NO Deductions

Basic 15 Not applicable 15 15
HRA 4 3.6 0.4 4
Special Allowances 2.85 Not applicable 2.85 2.85
LTA 0.2 0.2 0 0.2
Standard Deduction (for salaried)      – 0.5 -0.5 Not applicable
 Total Income Rs 22.05 lakhs Rs 4.3 lakhs Rs 17.75 lakhs Rs 22.05 lakhs

Tax calculation under the Old Tax Regime:

Nature Amount in INR Total
Salary 17,75,000  
Any other source of income 45,000  
Gross total income   18,20,000
Deductions :

 

U/S 80C

 

U/S 80D

 

U/S 80TTA

   
1,50,000  
20,000  
10,000 1,80,000
Taxable Income   1,64,000
Tax portion   3,04,500
Health and education cess   12180
Total tax liability (including cess)   3,16,680


Tax calculation under the New Tax Regime:

Nature Amount in INR Total
Salary 22,05,000  
Any other source of income 45,000  
Taxable Income   20,50,000
Tax portion   4,12,500
Health and education cess   16,500
Total tax liability (including cess)   4,29,000

 The Bottom Line

As a taxpayer, you may find it challenging to understand and follow the changes brought in by the tax regime. Choosing the appropriate one between the two can be a little daunting, but once you comprehend the differences and the components, the pros and cons you would be able to make your way. Using the help of various online tools, you can put your income in both the tax regime and calculate the respective taxes. Once you know the exact taxable amount, you would be able to derive a suitable decision.

However, if you still feel that you are unable to compare the old tax brackets Vs new ones, you can always take the help of a professional.

Buy Insurance - 18002101330