The Indian government offers two tax regimes to taxpayers. This choice brings liberty to choose as per individual suitability. To decide the suitable tax regime, you should consider factors like income source, employment status (salaried, businessman, entrepreneur, or freelancer), and investments made.
Since there is no custom-fit way to decide the tax regime, we analyse the two options objectively. The taxpayers can evaluate both options independently and file their returns.
Old Tax Regime vs New Tax Regime
|Annual Income||Old Regime Slab||New Regime Slab|
|Up to INR 2.5 lakhs||Nil||Nil|
|INR 2.5 lakh to 5 lakhs||5%||5%|
|INR 5 lakhs to 7.5 lakhs||20%||10%|
|INR 7.5 lakhs to 10 lakhs||20%||15%|
|INR 10 lakhs to 12.5 lakhs||30%||20%|
|INR 12.5 lakhs to 15 lakhs||30%||25%|
|INR 15 lakhs and above||30%||30%|
The New Tax Regime
Focusing on the new tax regime, it has six tax slabs with reduced rates. Due to changes in the income slabs and the different tax rates, many deductions and exemptions don’t get applied.
In the context of comparing the two regimes, read ahead of the plus and the minus points of the new tax regime:
- No compulsion to join
- The flexibility of investing their money as per their preference
- No obligation to invest in insurance or tax-saving schemes
- Provision of multiple tax slabs
- Present exemptions will be reviewed and phased out gradually
- Due to zero exemptions, the taxable amount will be higher in comparison to the old tax regime
- In case the old tax regime gets scrapped off, the tax slabs of the new regime may not render benefit to all taxpayers.
Excluded Exemptions/Deductions in the New Regime
- House rent allowance
- Leave Travel Allowance
- Deductions on interest from savings account deposits (Section 80TTA/TTB)
- Standard deduction of ₹50,000 for salaried individuals
- Professional tax and entertainment allowance for government employees
- Tax relief on home loan (interest part)
- Deduction of ₹15000 from family pension (Section 57)
- Deductions against tax-saving investments under Chapter VI-A (80C, 80D, 80E, 80G, 80CCC, 80CCD, 80EEA, 80EEB, 80GG, etc.)
As per income tax slabs in India, Deduction under sub-section (2) of section 80CCD can still be claimed, contribution towards an employee’s account in NPS and section 80JJAA. If the employee’s contribution to EPF and NPS exceeds ₹7.5 Lakh, the employee is liable to pay tax.
Some Exemptions You Can Claim in the New Tax Regime
- Life Insurance returns
- Agricultural farming revenue
- Standard reduction on rent
- VRS proceeds (up to ₹5 lakhs)
- Retrenchment compensation
- Interest & maturity amount of PPF/Sukanya Smriddhi Yojana
- Retirement-cum-death benefit
- Educational scholarship amount
- Commutation of Pension
Choosing Out of the Two Tax Regimes
Tax experts advise that the old tax regime is suitable for those with high annual income as they get more investment opportunities and the variation of deductions and exemptions. On the other hand, the new tax regime fits the new investors or those who have just started their careers.
Choice of the two tax regimes primarily depends on the annual income, the financial status, along with the desired deductions/exemptions. As taxpayers, compare, analyse and then evaluate the two regimes of income tax slabs in India and then file your taxes suitably. Some online calculators let you decide quickly on the tax regime that helps you save more tax. Use these calculators and choose wisely.