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

1. 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.
2. While the new tax system has reduced tax rates, it does not permit the use of the Income Tax Act’s deductions.

Simplicity

1. 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.
2. The new tax system offers a simpler tax calculation; however, individuals may lose out on deductions offered in the old tax regime.

Tax Implications

1. 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)