Old Regime Vs New Tax Regime: Which Is Right For You?
You have put in a lot of effort and made money, but you’re not sure which tax regime to choose, the new or the old one.
Don’t worry; we’ve got you covered. Read the blog to get all the answers to your old and new regime related questions.
Overview of Income Tax Slab
A taxation system that applies to an individual based on their income and taxes them based on different slabs is referred to as an income tax slab. An individual’s tax slab rises in tandem with their income. This taxation system is regarded as fair and progressive because an individual’s tax liability rises with their income, and lower income groups are exempt from taxes.
The Ministry of Finance modify / update the tax slabs annually, and they are announced at each budget speech.
Tax Regimes in India
In India currently, there are two types of tax regimes, i.e., Old Regime and New Regime.
Old Tax Regime – Before 2020, India had just one tax system. Under the Old tax system, you could deduct a variety of expenses from your income, such as house rent, travel expenses, medical expenses, tuition fees for children, etc. This would help you minimize your income and lower your tax obligation.
In the Old regime, the slab was determined by an individual’s age. Have a look at the below table:
| Income Slab | Tax Rate | ||
| Individuals aged <60 years | Senior Citizens aged above 60 but below 80 years | Super Senior Citizens aged >80 years | |
| Up to INR 250,000 | Nil | Nil | Nil |
| INR 250,001 to 300,000 | 5% | Nil | Nil |
| INR 300,001 to 500,000 | 5% | 5% | Nil |
| INR 500,001 to 1,000,000 | 20% | 20% | 20% |
| Above INR 1,000,000 | 30% | 30% | 30% |
New Tax Regime – The Ministry of Finance announced a new taxation system (optional) for individuals and Hindu Undivided Families (HUFs) in the budget of the financial year 2020–21. However, if a person chooses to use the new tax regime, they will not be eligible to deduct things like HRA, LTA, Section 80C deductions, and so on. In fact, no deductions are available in the new tax regime apart from the standard deduction of INR 50,000 for salaried individuals and pensioners. Because there aren’t many deductions available under the new regime, many don’t like it, and not many have chosen it after its implementation.
Income Tax Slab as per new regime
| Income Slab | Tax Rate |
| Up to 300,000 INR | Nil |
| 300,001 to 600,000 INR | 5% |
| 600,001 to 900,001 INR | 10% |
| 900,001 to 1,200,001 INR | 15% |
| 1,200,001 to 1,500,001 INR | 20% |
| Above 1,500,000 INR | 30% |
Old Tax Regime Vs New Tax Regime
There are a few major differences between the old and new tax regimes. Let’s analyze each one of them:
Tax Rates
- Under the old tax regime, tax rates are higher, but an individual can avail of various tax deductions in sections such as 80C, 80D, 80TTA, etc.
- While the new tax system has reduced tax rates, it does not permit the use of the Income Tax Act’s deductions.
Simplicity
- Although there are many ways to save taxes under the previous tax system, it could be challenging to engage in tax planning. Further, sometimes people end up spending / investing their savings only to avail certain deductions.
- The new tax system offers a simpler tax calculation; however, individuals may lose out on deductions offered in the old tax regime.
Tax Implications
- The previous tax system levied taxes based on an individual’s income and allowed deductions, which favored higher-income earners.
2.The new tax system mainly benefits those with lower incomes and those who don’t want to claim any deductions.
Example of Calculation under different Tax Regime
Let us clarify the differences between tax regimes using examples to help you better understand the difference.
Suppose Mr. A is a salaried individual who is earning an annual income of INR 800,000 (salary). Let’s calculate the tax liabilities of Mr. A under different tax regimes:
Old Tax Regime
| Particulars | Tax under Old Regime (INR) |
| Salary | 800,000 |
| Less: Standard Deduction | -50,000 |
| Taxable Income | 750,000 |
| Tax up to 250,000 | Nil |
| Tax from 250,001 to 500,000 @5% | 12,500 |
| Tax from 500,001 to 750,000 @20% | 50,000 |
| Total Tax | 62,500 |
| Cess @4% on Total Tax | 2,500 |
| Total Tax including cess | 65,000 |
New Tax Regime
| Particulars | Tax Under Old Tax Regime (INR) |
| Salary | 800,000 |
| Less: Standard Deduction | -50,000 |
| Taxable Income | 750,000 |
| Tax up to 300,000 | Nil |
| Tax from 300,001 to 600,000 @5% | 15,000 |
| Tax from 600,001 to 750,000 @10% | 15,000 |
| Total Tax | 30,000 |
| Cess @4% on Total Tax | 1,200 |
| Total Tax including applicable cess | 31,200 |
From the above tables, we can conclude that if Mr. A opts for the old tax regime, his tax liability will come to INR 65,000; while he opts for the new tax regime, he will save INR 33,800.
Conclusion
In summation, it depends on individual-to-individual which tax system is better as each person’s net taxable income and amount of deductions is different. Both the new and old taxation system has advantages and disadvantages of its own. Choosing between the two will necessitate professional guidance from a tax adviser or a Chartered Accountant.
Further, if you want to calculate your taxable amount, explore our calculator: Income
Tax Calculator
Frequently Asked Questions (FAQs)
Is the section 80C deduction still relevant under the new tax regime?
No, deduction under Section 80C (up to INR 150,000) is not allowed when you opt for a new tax regime. It is only available in the old tax regime.
Can a salaried individual change the new regime to the old regime?
Yes, any individual who has opted for a new tax regime can opt for an old tax regime in the next financial year.
Is deduction u/a 80D applicable in the new tax regime?
No, an individual cannot claim a deduction under section 80D as the insurance premium paid towards health insurance is not applicable in the new tax regime.
When was the new tax regime introduced?
The Finance Minister, Nirmala Sitharaman, announced a new tax regime (optional) for individuals and Hindu Undivided Families (HUFs) in the budget of 2020-21.
Which tax regime is better for me if I have a home loan?
If you have a home loan or are looking to take one, then you should opt for the old tax regime. However, it still depends on the interest amount of the loan and your taxable income.
