» Old Vs New Tax Regime

The New Tax Regime

Let’s address the dinosaur in the room first – the new tax regime. Under this regime 6 tax slabs have been introduced with existing rates slashed on income upto INR 15 Lakh. The rates as per the “New Income Tax Regime’ are as follows:

No income tax, for annual income up to INR 2.5 lakhs.
No income tax, for annual income up to INR 5 lakhs.
10% tax for annual incomes between INR 5 lakh and INR 7.5 lakhs.
15% tax for annual income between INR 7.5 Lakh and INR 10 Lakh
20% for INR 10 lakhs to INR 12.5 lakh income per year
25% for INR 12.5 lakhs to INR 15 lakhs

The exemptions and deductions are not applicable here. This being said, the new tax regime has its own merits and demerits.

The first good point about the new system is that it is not completely replacing the old, or rather current system. The Government is not forcing the new rates and the new direct tax system on the taxpayers.

Secondly, the taxpayers can now decide where they want to save their money. They don’t have to rush for tax-saving schemes and insurances or park their money in avenues which are not aligned with their financial goals, just to save tax

A few exemptions are applicable (for some time) with the new scheme, those which are indispensable. Gradually all the exemptions will be reviewed and those unnecessary will be taken away.

Those looking for exemptions can continue with the old system. Those looking for a simplified process and reduced rate, could adopt the new.

Even though the new rates are lucrative, the old tax regime might be beneficial for some taxpayers, while it may not help others. This will depend on the income bracket one falls into.

Which Exemptions And Deductions Are Allowed And Which Have Been Removed?

Exemptions means the taxpayer is free from the tax burden on certain incomes. For example, you do not have to pay tax on income from agriculture.

Deduction means removing certain investments and expenditures the taxpayer makes and then calculating the gross income. For example, if you pay INR 20,000 as health insurance premium, you can deduct this amount from your total income.

In the ‘old tax regime’ there are 120 exemptions. Taxpayers do not benefit from all of them. Most of them complicate the direct tax system. After thorough study, the Ministry of Finance has removed around 70 exemptions.

Now the question is if you opt for the new tax regime, what are the exemptions and deductions you wouldn’t be able to claim further? Here’s a list

Leave Travel Allowance
House rent allowance
Standard deduction of INR 50,000 that was available for salaried individuals
Deductions available under Section 80TTA/TTB (on interest from savings account deposits)
Entertainment allowance deduction and professional tax (For government employees)
Tax relief on interest paid on home loan for self occupied or vacant property u/s 24
Deduction of INR 15000 allowed from family pension under clause (iia) ( Section 57)
Tax-saving investment deductions under 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) (Except, deduction under Section 80CCD(2)—employers contribution to NPS, and Section 80JJA) and so on. These popular tax saving investment options include ELSS, NPS, PPF, tax break on insurance premium among others.

One can still claim deduction under sub-section (2) of section 80CCD which is basically employer’s contribution towards employee’s account in NPS and section 80JJAA ( for new employment). Also note that if the employee’s contribution to EPF and NPS exceeds more than INR 7.5 Lakh, in the financial year in question, then the employee is liable to pay tax. Here’s a list of important exemptions that are retained in the new system

Important exemptions which are retained in the new system:

Income from Life Insurance,
Agricultural Income,
Standard reduction on rent,
Retrenchment compensation,
Leave encashment on retirement,
VRS proceeds upto INR 5 lakhs,
Death cum retirement benefit,
Money received as scholarship for education, etc.

Old vs New: A Comparison For Different Slabs

Taxpayers with annual income between INR 5 lakhs to INR 10 lakhs are taxed at 20%, under the old regime. And in the new regime, they will be taxed at half that rate i.e. 10%. Also, those with annual income of INR 7.5 lakhs to INR 10 lakhs will have to pay 15% income tax.

However, if the taxpayer is benefiting from exemptions and his net tax payable is less, he/she can choose to continue with the old tax regime.

OLD RATES (with exemptions)	ANNUAL INCOME	NEW RATE (without exemptions)
Nil	Upto INR 2.5 Lakhs	Nil
5%	INR 2.5 Lakhs To 5 Lakhs	5%
20%	INR 5 Lakhs To 7.5 Lakhs	10%
INR 7.5 Lakhs To 10 Lakhs	15%
30%	INR 10 Lakhs To 12.5 Lakhs	20%
INR 12.5 Lakhs To 15 Lakhs	25%
INR 15 Lakhs and above	30%

Let’s take an example, a person’s annual income comes to INR 6 lakhs. If he goes by the new rates, he will have to pay INR 60,000. (some of the exemptions allowed in the new tax regime may be beneficial)

If he chooses the old rates, he can deduct INR 1.5 lakhs under Sec 80C. His taxable income now is INR 4.5 lakhs. A simple preview of how much does the tax amount come to under different slabs with old and new tax regime will help you take the right call.

Before we begin, please note the following:-

Maximum amount of each of the exemptions are used here for calculation purposes.

Not everyone might invest in the same manner to save tax. If a person is not benefiting from the exemptions, he/she can choose the new regime.

The calculations made are for understanding purpose. Take advice from our experts as the filing process for different assessment years may differ.

For Annual Income Up To INR 2.5 Lakhs

There are more exemptions an individual can benefit from, than the ones taken here for calculation.

No tax for Individuals, HUF below the age of 60 years.
For senior citizens, no tax up to INR 3,00,000.

Under old and the new scheme.

For Annual Income Up To INR 5 Lakhs

There are more exemptions an individual can benefit from, than the ones taken here for calculation.

For senior citizens: INR 3,00,000 to INR 500000 – 5%
Under Sec 87A, individuals with total income (after deductions) that do not exceed INR 5 lakhs can claim a rebate of INR 12,500.

Annual Income of INR 5,00,000 (without exemption)
Income tax slab	Old Regime	New Regime
Tax Rate (%)	Tax (INR)	Tax Rate (%)	Tax (INR)
Up to INR 2.5 Lakhs	Nil	Nil	Nil	Nil
INR 2.5 Lakhs – 5 Lakhs	5%	12,500	5%	12,500
(-) Rebate		-12,500		-12,500
Tax Payable		Nil		Nil

For Annual Income Up To INR 7.5 Lakhs

Annual Income of INR 7,50,000 (without exemption)
Income tax slab	Old Regime	New Regime
Tax Rate (%)	Tax (INR)	Tax Rate (%)	Tax (INR)
Up to INR 2.5 Lakhs	Nil	Nil	Nil	Nil
INR 2.5 Lakhs – 5 Lakhs	5%	12,500	5%	12,500
INR 5 Lakhs – 7.5 Lakhs	20%	50,000	10%	25,000
Gross Tax Payable		62,500		37,500
Health and Education cess	4% on Gross Tax	2,500	4% on Gross Tax	1,500
Net Tax Payable		65,000		39,000

Annual Income of INR 7,50,000 (with exemption)
Particulars	INR	Total in INR
Annual Income	7,50,000	7,50,000
Exemptions Claimed: u/s 80C u/s 80CCD(1B) u/s 80D House Rent Allowance	-1,50,000 -50,000 -50,000 -10,000	-2,60,000
Taxable Income	4,90,000

Income tax slab	Old Regime	New Regime
Tax Rate (%)	Tax (INR)	Tax Rate (%)	Tax (INR)
Up to INR 2.5 Lakhs	Nil	Nil	Nil	Nil
INR 2.5 Lakhs – 5 Lakhs	5%	12,500	5%	12,500
INR 5 Lakhs – 7.5 Lakhs	Nil	Nil	10%	25,000
(-) Rebate		-12,500		Nil
Gross Tax Payable		Nil		37,500
Health and Education cess		Nil	4% on Gross Tax	1,500
Net Tax Payable		Nil		39,000

For Annual Income Up To INR 10 Lakhs

Annual Income of INR 10,00,000 (without exemption)
Income tax slab	Old Regime	New Regime
Tax Rate (%)	Tax (INR)	Tax Rate (%)	Tax (INR)
Up to INR 2.5 Lakhs	Nil	Nil	Nil	Nil
INR 2.5 Lakhs – 5 Lakhs	5%	12,500	5%	12,500
INR 5 Lakhs – 7.5 Lakhs	20%	50,000	10%	25,000
INR 7.5 Lakhs – 10 Lakhs	20%	50,000	15%	37,500
Gross Tax Payable		1,12,500		75,000
Health and Education cess	4% on Gross Tax	4,500	4% on Gross Tax	3,000
Net Tax Payable		1,17,000		78,000

Annual Income of INR 10,00,000 (with exemption)
Particulars	INR	Total in INR
Annual Income	10,00,000	10,00,000
Exemptions Claimed: u/s 80C u/s 80CCD(1B) u/s 80D	-1,50,000 -50,000 -75,000	-2,75,000
Taxable Income	7,25,000

Income tax slab	Old Regime	New Regime
Tax Rate (%)	Tax (INR)	Tax Rate (%)	Tax (INR)
Up to INR 2.5 Lakhs	Nil	Nil	Nil	Nil
INR 2.5 Lakhs – 5 Lakhs	5%	12,500	5%	12,500
INR 5 Lakhs – 7.5 Lakhs	20%	50,000	10%	25,000
INR 7.5 Lakhs – 10 Lakhs	Nil	Nil	15%	37,500
Gross Tax Payable		62,500		75,000
Health and Education cess	4% on Gross Tax	2,500	4% on Gross Tax	3,000
Net Tax Payable		65,000		78,000

For Annual Income Up To INR 12.5 Lakhs

Annual Income of INR 12,50,000 (without exemption)
Income tax slab	Old Regime	New Regime
Tax Rate (%)	Tax (INR)	Tax Rate (%)	Tax (INR)
Up to INR 2.5 Lakhs	Nil	Nil	Nil	Nil
INR 2.5 Lakhs – 5 Lakhs	5%	12,500	5%	12,500
INR 5 Lakhs – 7.5 Lakhs	20%	50,000	10%	25,000
INR 7.5 Lakhs – 10 Lakhs	20%	50,000	15%	37,500
INR 10 Lakhs – 12.5 Lakhs	30%	75,000	20%	50,000
Gross Tax Payable		1,87,500		1,25,000
Health and Education cess	4% on Gross Tax	7,500	4% on Gross Tax	5,000
Net Tax Payable		1,95,000		1,30,000

Annual Income of INR 12,50,000 (with exemption)
Particulars	INR	Total in INR
Annual Income	12,50,000	12,50,000
Exemptions Claimed: u/s 80C u/s 80CCD(1B) u/s 80D	-1,50,000 -50,000 -75,000	-2,75,000
Taxable Income	9,75,000

Income tax slab	Old Regime	New Regime
Tax Rate (%)	Tax (INR)	Tax Rate (%)	Tax (INR)
Up to INR 2.5 Lakhs	Nil	Nil	Nil	Nil
INR 2.5 Lakhs – 5 Lakhs	5%	12,500	5%	12,500
INR 5 Lakhs – 7.5 Lakhs	20%	50,000	10%	25,000
INR 7.5 Lakhs – 10 Lakhs	20%	50,000	15%	37,500
INR 10 Lakhs – 12.5 Lakhs	Nil	Nil	20%	50,000
Gross Tax Payable		1,12,500		1,25,000
Health and Education cess	4% on Gross Tax	4,500	4% on Gross Tax	5,000
Net Tax Payable		1,17,000		1,30,000

For Annual Income Up To INR 15 Lakhs

Annual Income of INR 15,00,000 (without exemption)
Income tax slab	Old Regime	New Regime
Tax Rate (%)	Tax (INR)	Tax Rate (%)	Tax (INR)
Up to INR 2.5 Lakhs	Nil	Nil	Nil	Nil
INR 2.5 Lakhs – 5 Lakhs	5%	12,500	5%	12,500
INR 5 Lakhs – 7.5 Lakhs	20%	50,000	10%	25,000
INR 7.5 Lakhs – 10 Lakhs	20%	50,000	15%	37,500
INR 10 Lakhs – 12.5 Lakhs	30%	75,000	20%	50,000
INR 12.5 Lakhs – 15 Lakhs	30%	75,000	25%	62,500
Gross Tax Payable		2,62,500		1,87,500
Health and Education cess	4% on Gross Tax	10,500	4% on Gross Tax	7,500
Net Tax Payable		2,73,000		1,95,000

Annual Income of INR 15,00,000 (with exemption)
Particulars	INR	Total in INR
Annual Income	15,00,000	15,00,000
Exemptions Claimed: u/s 80C u/s 80CCD(1B) u/s 80D	-1,50,000 -50,000 -75,000	-2,75,000
Taxable Income	12,25,000

Income tax slab	Old Regime	New Regime
Tax Rate (%)	Tax (INR)	Tax Rate (%)	Tax (INR)
Up to INR 2.5 Lakhs	Nil	Nil	Nil	Nil
INR 2.5 Lakhs – 5 Lakhs	5%	12,500	5%	12,500
INR 5 Lakhs – 7.5 Lakhs	20%	50,000	10%	25,000
INR 7.5 Lakhs – 10 Lakhs	20%	50,000	15%	37,500
INR 10 Lakhs – 12.5 Lakhs	30%	75,000	20%	50,000
INR 12.5 Lakhs – 15 Lakhs	Nil	Nil	25%	62,500
Gross Tax Payable		1,87,500		1,87,500
Health and Education cess	4% on Gross Tax	7,500	4% on Gross Tax	7,500
Net Tax Payable		1,95,000		1,95,000

How Will I know Which Scheme Is More Beneficial For Me?

Both systems have their own sets of pros and cons. The old system has many exemptions and deductions under numerous sections – availing a few of these required people to invest in tax saving investment options, which helped inculcate a good habit of investing. On the other hand, the new system gives people more flexibility and tries to simplify the process. If you are someone who was claiming a lot of deductions under the old regime, you can probably save better sticking with the same system, as per the calculations. If you weren’t making any tax saving investments or claiming any deductions earlier too, then maybe the new system may prove beneficial. It also varies based on which slab you are in as well. However, since the system is new, it makes sense to consult a competent tax expert who can suggest the optimal tax saving route for you.