Old or New Income Tax Rates Slabs (FY 2020-21)- what to choose?

In Budget 2020 FM announced a proposal of a new Income tax rates regime where a salaried person not having income from Business or Profession, can opt for and calculate the income tax liability in a simpler way without going much into the technical calculations.

This was with a caveat that if opted then the employee would have to forego all the exemptions and Deductions which he/she otherwise could opt-in existing or (now) old income tax regime.

Since salaried people are asked to declare their savings structure at the beginning of the financial year so the employer can start deducting the TDS from the same, this time the employee would also be asked which tax regime he/she wants to opt for.

Normally by this time of the month every year, most of the employers have already asked for the savings detail, but due to most of the businesses are working under a lockdown or not working at all, so this declaration may be asked once you rejoin the work or surely in the month of May.

(Also read: Follow the lockdown rules, to keep your investments safe)

Many people are also waiting for the revised salary structure as they are expecting a reduction in the salary due to the ongoing Covid 19 situation and expected Business losses. Some are thinking about the extreme situation in terms of job losses.

Keeping the fingers crossed and thinking positively on the lines, let’s be prepared for the option you should select with whatever income you are going to generate in FY 2020-21.
(Read:3 Months Moratorium on Loan EMI – Important things to Understand)

Old Tax Regime – Income Tax Rates

Taxable Income (Rs.)Slabs
Up to Rs 2.50 lakhNIL
2.50 lakh – 5.00 lakh5%
5.00 lakh -10.00 lakh20%
Above 10 lakh30%

*If Income is up to Rs 5 lakh only then section 87A Rebate can be claimed. **Basic tax exemption Slab for Senior Citizen (Above 60 years) is up to Rs 3 lakh; and for Super Senior citizens (Above 80 years) is up to Rs 5 lakh

New tax Regime (FY 20-21) – Income Tax Slabs

Taxable Income (In Rs.)Tax rate
Up to 2.50 lakhNIL
2.50 lakh – 5.00 lakh5%
5 lakh -7.50 lakh10%
7.50 lakh – 10.00 lakh15%
10.00 lakh – 12.50 lakh 20%
12.50 lakh – 15.00 lakh25%
Above 15.00 lakh30%

*If Income is up to Rs 5 lakh only then section 87A Rebate can be claimed. **Basic tax exemption Slab for Senior Citizen (Above 60 years) is up to Rs 3 lakh; and for Super Senior citizens (Above 80 years) is up to Rs 5 lakh

The surcharge was left untouched in the Budget provisions. And this is applicable in both the cases whichever Income tax slab you opt for.

So Taxpayers with income between Rs 50 lakh and Rs 1 crore will continue to pay 10% surcharge on the tax. The surcharge is 15% for income between Rs 1 crore and Rs 2 crore, 25% for between Rs 2 crore and Rs 5 crore, and 37% for income over Rs 5 crore.

Please note that besides the difference in Tax Slabs and Income Tax rates, the Major point of selection between the Old income tax rates regime and the New Income Tax rates regime is that in the new Regime you won’t be able to enjoy the tax exemptions and deductions, which may be available to you or you generally claim.

What are the Major Income Tax deductions which one can not claim in the new tax regime?

  1. House Rent Allowance
  2. Standard Deduction
  3. Savings benefit is allowed u/s 80C – 80U – Like ELSS, PPF, NPS, Insurance, etc. 
  4. Housing Loan Interest payment benefit u/s 24B
  5. Interest Income u/s 80TTA and 80TTB (For Senior citizens) benefit.
  6. Education Loan Interest u/s 80E

Looks like a Big List of benefits to forego…Right?
But the point here to note is that Not all the benefits are being claimed by every taxpayer. 

Some are living in their own house with no home loan. Everyone does not have an Education loan liability. All may not like to save u/s 80C or may not want to save this year to keep the liquidity intact.

Which option should you choose will depend on the composition of your salary, your loan profile, your savings potential, etc.? So, one has to do comparative analysis and if the old slab rates look more beneficial, then you may go with them.

Let me share an example here for better understanding

Mr. X and Mr. Y both have the same salary structure, Mr. X claims various exemptions and deductions like- HRA, 80C, 80D, etc. 

But Mr. Y, do not claim any deduction or exemption.

Let us first look at the Net Taxable Income in both the regimes for both Mr.X and Mr.Y:

old and new Income tax slabs
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Now let us see the tax liability in both the cases.

new and old income tax slabs 20-21
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What do you need to do?

In the New income tax rates regime, it is easy, as you just to have, have an Idea on total Income, without any deductions and benefits, and calculate the tax.

But in the Old regime, you need to apply all the available and applicable provisions and see what would be your total taxable income. (You may learn about the major deductions and exemptions available to an individual in this article). Here I have added one Income tax deductions list infographic too for an easy read. 

There’s a calculator available on the Income Tax website where you can make the comparison between Old and New tax regimes and decide which option may suit you best.

Old and new income tax slab 20-21

One Important thing. Even if at a later stage i.e after declaring to your employer about your choice of tax regime you opt for, you feel that the other one could have been better, then do not worry. When you file your Income-tax return next year i.e. in Assessment Year, you may do the self-assessment again with the other regime of your choice. 
(Also Read: Benefits of Filing Income Tax Return on time?)

Conclusion:

The Thought behind coming up with this new Income tax rates regime is to make things simple for the taxpayers so they need not take any professional help. But I think that now in many cases professional help has become more important to do the exact tax calculation, so one should be able to take the benefit of all available and possible tax benefits, and chose what’s better.
But if someone wants to keep things simple, then, of course, the new one is suitable.

How do you find the old and new income tax rates in comparison? Do share your views and queries if any in the comments section.


6 COMMENTS

  1. Dear Sir,
    Very nicely explained all the tax implications under the old and new tax regime.
    I want to understand whether deductions u/s 80-G (towards donations to qualified trusts) which is available under the old tax regime, would it be available for deductions under the new tax regime.

  2. Hai Mani, I am Suresh from Bangalore. My total Salary is 8.5L (Sal+Pension). I have HBL, Edn loan, NPS, additional PF, medical exp for dependents and lastly for PM care fund also. Which one will be a better option either old or new scheme

    • There is no one-word answer to this. A comparative analysis of both the tax regimes is required to be done based on your salary composition, savings potential, loan profile, etc. Then we need to decide which tax regime would be beneficial.

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