- Which is better option Old Regime or New for Tax saving?
- What are the slab rates in case assessee is opting for old tax regime?
- What are the slab rates in case assessee is opting for new tax regime u/s 115BAC?
- How can assessee opt for new or old regime?
- What information is required to be furnished in Form 10-IE?
- What deductions are not allowed in the new tax regime?
- What deductions can one claim if they switch to the new tax regime?
- Comparing Old vs New Scheme Side-by-side
- Making your choice between the two
Which is better option Old Regime or New for Tax saving?
In order to make taxation simpler for citizens, the Finance Act 2020 established a new tax scheme under Section 115BAC. Individuals and HUF taxpayers now have the option of paying income tax at a reduced rate under the new tax regime. Most taxpayers had long requested this, but it came at a price: the taxpayer had to sacrifice certain deductions. To add to the uncertainty, the finance minister gave taxpayers the option of choosing between the new and present regimes, leaving it up to them to pick. Let us take a closer look at the new regime, its merits, and how it compares to the current tax structure in this article.
What are the slab rates in case assessee is opting for old tax regime?
If assesee is opting for old tax regime the following are the slab rates applicable:
| Slabs of Income | Tax Rate |
| 0 to 2,50,000 | 0% |
| 2,50,001 to 5,00,000 | 5% |
| 5,00,001 to 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
Apart from above health and education cess at the rate of 4% is charged on the total tax calculated.
What are the slab rates in case assessee is opting for new tax regime u/s 115BAC?
If assessee is opting for new tax regime the following are the slab rates applicable:
| Slabs of Income | Tax Rate |
| 0 to 2,50,000 | 0% |
| 2,50,001 to 5,00,000 | 5% |
| 5,00,001 to 7,50,000 | 10% |
| 7,50,001 Rs. 10,00,000 | 15% |
| 10,00,001 to 12,50,000 | 20% |
| 12,50,001 to 15,00,000 | 25% |
| Above Rs. 15,00,000 | 30% |
Apart from above health and education cess at the rate of 4% is charged on the total tax calculated.
How can assessee opt for new or old regime?
• If a person or a HUF chooses the new tax regime for FY 2020-21, form 10IE must be filed with the ITR for FY 2020-21 to notify the tax department that they have chosen the new tax regime.
• An individual with business income is required by law to submit this form before the ITR filing deadline, which is July 31. (unless extended by the government).
• The deadline for filing ITRs for the fiscal year 2020-21 has been extended until September 30, 2021.
• The form can be submitted before/at the time of ITR filing for salaried individuals, even if the ITR is filed beyond the due date.
What information is required to be furnished in Form 10-IE?
The individual/HUF is required to furnish the following information in Form 10-IE:
- Name of the individual/HUF
- Address
- PAN
- The financial year for which option is exercised
- If the individual/HUF has income under business or profession
- Date of birth
- Nature of business/profession, (mandatory if an individual is having income from business and profession)
- Whether the individual/ HUF has any Unit in International Financial Services Centre (IFSC), as referred to in section 80LA(1A)
- Whether option under clause section 115BAC(5)(i) has been exercised in Form 10-IE for any earlier previous year/ years and is now being withdrawn (to be activated if withdrawal option is selected)
What deductions are not allowed in the new tax regime?
The following are the deductions and exemptions you cannot claim under the new tax system:
| Sr no | Deductions or Exemptions not allowed | Amount of deduction/ Exemptions |
| 1 | House rent allowance u/s 13A | Lower of 40%/ 50% Of (Basic+ DA+ Turnover commission) or Actual amount received or Rent paid Minus 10% of (Basic+ DA+ Turnover commission) |
| 2 | Leave travel allowance | Exemption is available only on the actual travel costs i.e., the air, rail or bus fare incurred by the employee |
| 3 | Food coupons | Upto Rs. 50 Per meal is exempt the excess is taxable under salary |
| 4 | Children Education allowance | Max Rs. 100 per month per child upto Maximum 2 child |
| 5 | Helper allowance | Fully Exempt |
| 6 | Special compensatory allowance | Fully Exempt |
| 7 | Border area allowance | Fully Exempt |
| 8 | Tribal areas allowance | Rs. 200 per month |
| 9 | Transport allowance for employees of transport | Lower of amount received X 70% or Rs. 10000 pm |
| 10 | Travelling allowance | Fully Exempt |
| 11 | Island duty allowance | Fully Exempt |
| 12 | Uniform allowance | Fully Exempt |
| 13 | Research allowance | Fully Exempt |
| 14 | Leave encashment benefit | Lower of Rs. 3,00,000 per annum or Annual leave encashment amount or Average salary of last 10 months or Salary per day X untilised leave (Considering maximum 30 days allowed leave per year) |
| 15 | Reimbursement of medical expense u/s 17(2) | Amount of expense incurred on treatment in government hospital or Employers hospital or Government recognised hospital |
| 16 | Any allowance granted to an employee to meet the hostel expenditure on his child | Max Rs. 300 per month per child upto Maximum 2 child |
| 17 | Compensatory Field Area Allowance | Fully Exempt |
| 18 | Compensatory Modified Field Area Allowance | Fully Exempt |
| 19 | Underground Allowance for mine workers | Max Rs. 800 per month |
| 20 | Daily allowance by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof u/s 10(17) | Fully Exempt |
| 21 | Entertainment allowance u/s 16 | For government employees only: Lower of 20% of Basic salary or Actual amount received or Maximum Rs. 5000 |
| 22 | Profession tax u/s 16 | Maximum Rs. 2,500 |
| 23 | Interest on Housing loan u/s 24(2) with respect to self-occupied property | Maximum Rs. 2,00,000 |
| 24 | Standard deduction u/s 16 | Maximum Rs. 50,000 |
| 25 | Deduction with respect to Specified investment under 80C | Maximum Rs. 1,50,000 |
| 26 | Deduction with respect to Contribution to NPS u/s 80CCD(1B) | Maximum Rs. 50,000 |
| 27 | Deduction with respect to mediclaim premium or medical expenses u/s 80D | Maximum Rs. 50,000 / Senior Citizen then Rs 75,000 |
| 28 | Deduction with respect to medical treatment of handicapped relative u/s 80DD | Maximum deduction Normal disability =75,000 and for Severe disability = 1,25,000 |
| 29 | Deduction with respect to treatment of specified disease u/s 80DDB | Maximum deduction Lower of Actual expenses or Maximum Rs. 40000 for other and 100000 for senior citizen |
| 30 | Deduction with respect to Interest on Education Loan u/s 80E | Interest amount for 8 consequtive years |
| 31 | Deduction with respect to donation to trust or political parties under section 80G | Amount of donation |
| 32 | Deduction with respect to donation to trust or political parties under section 80GGC | 100% of Donation made |
| 33 | Deduction with respect to interest on savings account u/s 80TTA | Lower of Amount of saving interest or Rs. 10,000 |
| 34 | Deduction with respect to interest on Deposits to senior citizens u/s 80TTB | Lower of Amount of interest or Rs. 50,000 |
| 35 | Additional Deduction for Interest on Home Loan u/s 80EE | Maximum Rs. 50,000 |
| 36 | Additional Deduction for Interest on Home Loan u/s 80EEA | Maximum Rs. 1,50,000 |
| 37 | Deduction for Interest on electric vehicle loan u/s 80EEB | Maximum Rs. 1,50,000 |
| 38 | Deduction for handicapped assessee under section 80U | Normal= 75,000 or Severe= Rs. 1,25,000 |
| 39 | Deduction for Royalty from books under section 80QQB | Lower of Eligible royalty or Rs. 3,00,000 |
| 40 | Deduction for Royalty from patent under section 80RRB | Lower of Eligible royalty or Rs. 3,00,000 |
| 41 | Deduction for donation to scientific research Organisation under section 80GGA | 100% of Amount of donation |
| 42 | Deduction under section 80GG for rent paid other than HRA | Lower of Rs. 5000 per month or 25% of Adjustment gross total income or Rent paid- 10% of Adjustment gross total income |
| 43 | Deduction u/s 80JJA with respect to Income from collecting and processing biodegradable waste | 100% of profit of business |
| 44 | Deduction under section 57 with respect to family pension | Lower of Rs. 15,000 or 1/3 rd of the amount of pension received |
| 45 | Deduction u/s 10(32) In Case of Income from Minor Child | Maximum deduction of Rs. 1500 per child |
| 46 | Deduction u/s 10AA with respect to income of SEZ unit | Maximum deduction is 100% of profits for 1st 5 years of business and 50% of profits for the next 5 years of business |
| 47 | Deduction of deprecation as per section 32 | Amount of depreciation as per rate schedule of income tax act |
| 48 | Deduction u/s 32AD for investment in new Plant and Machinery in notified backward area | 15% of the Actual cost of new plant and machinery installed |
| 49 | Deduction with respect to specified business under section 35AD | 100% of the profit from specified business |
| 50 | Deduction with respect to expenditure on agricultural extension project u/s 35CCC | 150% of the expenditure allowed on agricultural extension |
| 51 | Deduction with respect to tea, coffee, rubber business u/s 33AB | Lower of Actual amount deposited in NABARD a/c or 40% of PGBP before this deduction |
| 52 | Deduction with respect to petroleum and natural gas business u/s 33ABA | Lower of Actual amount deposited in site restoration account or 20% of PGBP (before the deduction) |
| 53 | Deduction with respect to contribution to outsiders to IIT national laboratory for scientific research under section 35(2AA) | 150% of the contribution paid |
| 54 | Deduction with respect to expenditure on scientific research u/s 35 | 100% deduction for Revenue and capital expenditure incurred for scientific research |
What deductions can one claim if they switch to the new tax regime?
Assesses can claim the following deductions if they opt for the new tax regime:
| Sr no | Deductions or Exemptions not allowed | Amount of deduction/ Exemptions |
| 1 | Exemptions with respect to gratuity under section 10(10) | Lower of Last drawn salary X no of years employed X 15/26 or Rs. 20 Lakhs or Actual gratuity received |
| 2 | Exemptions with respect to commuted (lumpsum) pension u/s 10(10A) | For government employees= Fully exempt and other employees= if gratuity is received by the employee then 1/3 rd of the commuted pension is exempt else 50% of the commuted pension is exempt |
| 3 | Exemptions on Maturity proceeds of Life insurance u/s 10(10D) | Fully exempt |
| 4 | Deduction under section 80CCD(2) with respect to Contribution by employer to NPS | Lower of employer contribution or Maximum 10% of the Salary |
| 5 | Interest on Housing loan u/s 24(2) with respect to let out property | Whole amount of interest on housing loan |
| 6 | Deduction under section 80JJAA with respect to additional employees cost | Maximum 30% of additional employee cost incurred during the year |
Comparing Old vs New Scheme Side-by-side
| Sr. No. | Particulars | Old Tax Regime | New tax Regime |
| 1 | Income tax slabs : | Rate | Rate |
| Upto Rs.2,50,000 | Nil | Nil | |
| Rs.2,50,001 to Rs.5,00,000 | 5% | 5% | |
| Rs.5,00,000 to Rs.7,50,000 | 20% | 10% | |
| Rs.7,50,001 to Rs.10,00,000 | 20% | 15% | |
| Rs.10,00,001 to Rs.12,50,000 | 30% | 20% | |
| Rs.12,50,001 to Rs.15,00,000 | 30% | 25% | |
| Rs.15,00,001 and above | 30% | 30% | |
| 2 | Surcharge on income : Upto Rs.50 lacs Above Rs.50 lacs to Rs.1 Crore Above Rs.1 Crore | Nil 10% 15% | Nil 10% 15% |
| 3 | Health & Education Cess | 4% on (Tax + Surcharge thereon) | 4% on (Tax + Surcharge thereon) |
| 4 | Rebate u/s 87 A | Maximum rebate of Rs.12,500 if the taxable income is upto Rs.5 lacs | Maximum rebate of Rs.12,500 if the taxable income is upto Rs.5 lacs |
| 5 | Standard deduction (For salaried person) | Rs.50,000/- | Not available |
| 6 | Deductions like – LTA, HRA, Professional Tax, Housing Loan – Principal & Interest, Tuition Fees, Chapter VI-A deductions | Available | Not available |
| 7 | Deduction on contribution to National Pension Scheme (NPS) (Benefit available for Salaried person) | For Non-Government Employee, Maximum deduction allowed is lower of – 1) 10% of salary (Basic + Dearness Allowance) 2) Rs.50,000 | Deduction is allowed on Employer’s contribution to Employee’s NPS A/c. Deduction of upto 10% of Salary (Basic + Dearness Allowance) qualifies for deduction u/s 80 CCD(2) irrespective of any limit. Employee’s contribution to NPS would not attract any deduction. |
Making your choice between the two:
In light of the foregoing and in light of the new income tax regime, taxpayers may compare the two regimes if they want to go with the more favourable new tax system. A taxpayer who wants more flexibility in their investing options may want to investigate the new tax structure. However, a comparison of the two regimes is recommended.
Based on Gross Income and deductions, here is a quick summary of which taxation scheme to go ahead with while filing your Income Tax return for AY 2021-22
| Sr. No. | Gross Income (Rs.) | Deductions (Rs.) | Scheme Beneficial |
| 1 | Upto Rs.7,50,000 | > Rs.1,25,000 | Old |
| 2 | Rs.10,00,000 | > Rs.1,87,000 | Old |
| 3 | Rs.12,50,000 | > Rs.2,08,000 | Old |
| 4 | > Rs.15,00,000 | > Rs.2,50,000 | Old |
Individuals receiving income from Salary, House Property, Capital Gains, and Other Sources can opt for whichever tax system is most advantageous to them. This option can be used every year, allowing them to choose between the two regimes depending on which is more advantageous for that specific financial year.
Individuals with company or professional income cannot migrate between the old and new tax systems every year. Individuals who choose the new taxation regime have just one chance to return to the previous regime in their lifetime. Furthermore, if you return to your previous tax regime, you will not be able to convert to a new one unless your income from a business or profession ceases to exist.
By Team Hypertax