With the start of the FY 2020-2021, salaried employees have been asked by their employers to declare their investments. In the Budget 2020 a new proposal was introduced regarding personal tax regime for individual taxpayers, where apart from filing investments declaration, they are also required to indicate their choice of tax regime (The Central Board of Direct Taxes issued a circular on April 13 directing all employers to obtain a declaration form employees if they wish to opt for new tax regime).  Since choosing between old and new tax regime has been made optional,  taxpayers are expected to be  aware of the tax liability consequent to indicating their choice of regime  to the company. New tax regime at concessional rate of taxes has come with the cost of foregoing certain deductions and exemptions.

Do We Have Option to Switch During the Year?
What are the Pros and Cons of New Tax Regime

¢ Non availability of certain specified deductions

Over the years the government, through addition of clauses to the Income Tax Act, has given Indian taxpayers over 70 exemption and deduction options through which they can bring down their taxable income and hence pay less. The new tax regime does not allow the taxpayer to avail the specified deductions. Illustrative list of most commonly used deduction and exemption which is no more as per new tax regime is as follows: –

Exemptions Deductions
House Rent Allowance Public Provident Fund
Leave Travel Allowance ELSS (Equity Linked Saving Scheme)
Mobile and Internet Reimbursement Employee Provident Fund
Food Coupons or Vouchers Life Insurance Premium
Company Leased Car Principal and Interest component of Home Loan
Standard Deduction Children Tuition Fees
  Health Insurance Premiums
  Investment in NPS
  Tuition fee for Children
  Saving Account Interest
List of deductions retained under new tax regime
Pros and Cons of Old Tax Regime

¢ The old income tax regime has inculcated habit of saving culture in India by enforcing investments in specified tax-saving instruments, which led to savings for any future eventuality like marriage, education, purchase of house property, medical, etc.

What to choose?
Here the comparison of Old Tax rates & New Tax Rates as per Income Slab is given below :-
Tax Slab (₹) Old Tax Rates New Tax Rates
0 – 2,50,000 0% 0%
2,50,000 – 5,00,000 5% 5%
5,00,000 – 7,50,000 20% 10%
7,50,000 – 10,00,000 20% 15%
10,00,000 – 12,50,000 30% 20%
12,50,000 – 15,00,000 30% 25%
15,00,000 & above 30% 30%
Comparison of Taxable amount as per New as well as Old tax regime
Annual Income (₹) Old Tax Rates Taxable Amount New Tax Rates Taxable Amount Benefits
2,50,000 0% Nil 0% Nil Nil
5,00,000 5% Nil 5% Nil Nil
7,50,000 20% 37,500 10% 62,500 25,000
10,00,000 20% 75,000 15% 1,12,500 37,500
12,50,000 30% 1,25,000 20% 1,87,500 62,500
15,00,000 30% 1,87,000 25% 2,62,500 75,000
50,00,000 30% 12,37,500 30% 13,12,500 75,000

Note : In the above comparison chart the surcharge and education cess has not taken into consideration. The exemption / deduction are not available under new tax regime , under old tax regime exemption/ deductions are available but it is not taken into consideration because it vary from person to person . The tax calculation will vary on case to case basis depending upon the amount the assessee is investing in the tax saving option. But in general it is beneficial to opt for old tax regime for the assessee who has an annual income of upto Rs 15 Lac. You may also understand this concept from above cited examples.

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