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Salaried Taxpayer & Choosing between Old Tax Regime vs. New Tax Regime
New Income Tax Regime or Old Regime, which one is better for the Salaried Taxpayer is the most common questions.
The New Tax Regime is optional & so taxpayer s now have a choice to make between the New and Old Tax Regime after a careful comparison.
Each case has to be reviewed and examined individually. The broad parameters are discussed hereunder.
Annual Income / Tax Rate under New Tax Regime/ Tax Rate under Old Tax Regime are as under :
- Up to 2.5 Lakh /NIL /NIL
- 2.5 Lakh to 5 Lakh/ 5%/ 5%
- 5 Lakh to 7.5 Lakh /10% /20%
- 7.5 Lakh to 10 Lakh /15%/ 20%
5.10 Lakh to12.5 Lakh/ 20%/ 30%
- 12.5 Lakh to 15 Lakh /25%/ 30%
- Above 15 Lakh/ 30%/ 30%
New tax regime has lowered the income-tax rates, for income segments up to Rs 15 lakh. However , there is a rider for this lower tax rate. Person opting for lower tax rate have to forego exemptions and deductions available under various provisions of the Income-tax Act, 1961.
This means that whenever one chooses the New Tax Regime, they will not be able to get various exemptions and deductions like deduction
- Available under chapter VI A of the Act which grant deductions under Section 80.
- Standard Deduction under Section 16 (which is currently Rs 50,000) available to salaried individuals
- deduction on home loan interest, under Section 24(b) etc.
Around 70 exemptions and deductions have been removed for the person opting for the New Tax Regime prominent of which are as under:
- Leave travel allowance Section 10(5)
- House rent allowance Section 10(13A)
- Children Education Allowance
- Standard deduction
- Housing loan interest
- Section 80C investments
- Medical insurance premium U/S 80D
- Expenses actually paid for medical treatment of specified diseases and ailments U/S 80DDB
- Education loan interest U/S 80E
- Rent paid for furnished/unfurnished residential accommodation U/S 80GG
- Deduction in respect of donations to certain funds, charitable institutions U/S 80G
- Interest on deposits in saving account U/S 80TTA
- Interest on deposits U/S 80TTB for senior citizens
- Deduction for a certified person with a disability by the medical authority U/S 80
Taxpayer will be able to make the choice depending on their financial situation and depending on what is best suitable from a tax planning angel. Reports & Survey suggests that around 80% of the taxpayers will opt for the new tax regime. Itni on the basis of the investment, deductions data of around
5.78 Crores of the taxpayers wherein around 70% would clearly prefer to opt for new tax regime and around 10% may opt for it due to ease in calculations & paperwork.
All those Taxpayer who are availing multiple exemptions and deductions may not benefit from switching to the new system.
Section 80C compe individuals to save & serve the purpose of social security. However, the new tax regime has put more money in the hands of taxpayers by curtailing the incentives to save and has indirectly discouraged saving.
As far as making the right choice of the tax regime ia concerned, answer is not that difficult.
Any taxpayer having tax exemptions and deductions exceeding Rs 2.5 lakh in a year will not be benefitted by the new structure.
Threshold limit of Rs 2.5 lakh may obviously can just includes the standard deduction of Rs 50,000 which is available without any rider.
It leaves only an additional amount of Rs 2 lakh which can be easily fulfilled by
- Rs 1.5 lakh under Section 80C investments.
- Exemption for HRA
- Deduction for the interest paid on a home loan.
- Deduction up to Rs 10,000 for savings bank interest under Section 80TTA.
- Other deductions like Medical , contribution to the NPS, the interest on education loans, treatment of illness and for disabilities.
Though each and every taxpayers need to do their individual working before making the right choice, above broader discussion can help salaried taxpayers in arriving at the proper conclusions.