This article compares how the New Tax Regime compares against the Old Regime and which one should you opt for.
Old vs New Tax Regime
The choice of switching to the new tax regime is optional for all individuals and HUFs. Under the new income tax regime, income tax is paid on lower slab rates up to Rs. 15 lakhs. Under this, tax slabs rates of 5%, 10%, 15%, 20% and 25% are applied on the successive rises of Rs. 2.50 lakh commencing from the primary relief of Rs. 2.5 lakh till 15 lakhs of total income.
| Income slabs (Rs) | Old Regime (With exemptions and deductions) |
New Regime
(Without exemptions and deductions) |
| Up to 2.5 lakh | Nil | Nil |
| 2.5-5 lakh | 5% | 5% |
| 5-7.5 lakh | 20% | 10% |
| 7.5-10 lakh | 20% | 15% |
| 10-12.5 lakh | 30%
|
20% |
| 12.5-15 lakh | 25% | |
| Above 15 lakh | 30% |
But, if you opt for the new tax regime, you’ll have to waive some deductions you could avail of under the old regime. Salaried people now won’t be able to enjoy waivers of items such as standard deductions, House Rent Allowance (HRA), Leave Travel Assistance (LTA) and the allowances given out for performing duties for the employer. Various deductions like those available under Section 80 C (comprised of various items like EPF, School Fees, PPF, home loan repayment etc.), 80D (health insurance premiums) will also not be available to taxpayers. You will also have to forego interest on home loan for self-occupied and extend the loss in respect of let out property.
Retired senior citizens cannot claim a standard deduction from the pension obtained by them with respect to their former professions. Deductions only up to Rs. 50,000 available to senior citizens. Still, the tax benefits that the majority of the taxpayer have to waive off, benefits available with the existing system exceed the benefits of lower rates.
Let’s get to know the difference with the help of an example:
| Particulars | Old Tax Regime (Rs) | New Tax Regime (Rs) |
| Gross Income | 10,00,000 | 10,00,000 |
| Deductions: | ||
| U/Sec: 80C | 1,50,000 | – |
| U/Sec: 80D | 25,000 | – |
| U/Sec: 24(b) | 75,000 | – |
| Taxable Income | 7,50,000 | 10,00,000 |
| Tax Slab (OLD) | ||
| 0 to 2.5 Lacs | – | – |
| 2.5 to 5 Lacs @ 5% | 12,500 | – |
| 5 Lakh to 10 Lacs @ 20% | 50,000 | – |
| > 10 Lacs @ 30% | – | – |
| Tax Slab (NEW) | ||
| 0 to 5 Lac | – | – |
| 2.5 to 5 Lacs @ 5% | – | 12,500 |
| 5 to 7.5 Lacs @ 10% | – | 25,000 |
| 7.5 Lacs to 10 Lacs @ 15% | – | 37,500 |
| 10 Lacs to 12.5 Lacs @ 20% | – | – |
| 12.5 Lacs to 15 Lacs @ 25% | – | – |
| > 15 Lacs @ 30% | – | – |
| Income Tax | 62,500 | 75,000 |
| Cess @ 4% | 2,500 | 3,000 |
| Total Tax Outgoings | 65,000 | 78,000 |
The Exemptions & Deductions
With the new tax system in place, some of the exemptions and deductions have been eliminated. Here is a list if you represent the category of a salaried individual or business or professional.
- Salaried individuals could claim a standard deduction of Rs 50,000.
- Leave Travel Allowance
- House rent allowance depending upon salary structure and rent paid
- Professional tax paid by a maximum of Rs. 2,500/-
- Deductions available under Section 80TTA and 80TTB that is interest from Savings Account.
- Tax deduction on entertainment allowance and deduction on professional tax for government employees
- The interest amounts payable on home loan for a self-occupied or any vacant property u/s 24 maximum deductions of Rs. 2 lakhs
- Deduction of Rs 15,000 allowed from family pension under clause (ii) (a) Section 57
- Special Allowances that are provided under Section 10(14) except:
- Transport allowance granted to a disabled employee
- Conveyance allowance
- Any allowances granted for meeting the cost of travel on tour or transfer of an employee
- Daily allowance
- Perquisites
- Business owners and professionals will lose the exemption to Special Economic Zones under Section 10AA.
- Deductions under Section 32AD, 33AB, 33ABA, 35(1)(ii),35(1) (ii((a), 35(1)(iii), 35(2AA), 35AD and 35CCC of the Income Tax Act.
- Options of additional depreciation under Section 32(ii) (a) of the Income Tax Act
- The option to carry forward or unabsorbed depreciation of earlier years
- Tax-saving investment deductions under Income Tax Act, Chapter VI-A 80C, 80D, 80E, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc.
These tax reduction investments include comprising of ELSS, NPS, PPF tax aid on Mediclaim insurance premium, FDR, dependents who are differently-abled, expenses for defined medical therapies, interest on education loan and many more.
How Will I know Which Scheme Is More Beneficial for Me?
Like any new change, this one also has its own advantages and disadvantages. The old regime has many exemptions. On the other hand, the new system gives people more flexibility and simplifies the process. Someone who claims a lot of deductions, they can probably save better by sticking with the old tax system. Someone who wasn’t making any tax-saving investments or claiming any deductions earlier, then the new system is beneficial. It also differs with regard to the income slab you are in.