The Finance Minister has decided to reform tax rates under the new tax regime. It is expected to be better than the existing tax system because of the standard deduction, which was not given in the earlier tax regime. Despite the debate on whether the new tax regime is much better than the previous one, the cases may be different if the fresh one is put in for comparison with the old tax system after counting eligible expenditures and long-term investments.
Income Tax Calculation As Per New and Old Tax Regimes
It depends on an individual’s income and the deduction/exemptions given to choose between the old tax regime and the new tax regime. The proposed new tax system would bring more benefits to an individual who has a deduction under section 80C of Rs 1,50,000. However, the old tax system would be advantageous to an individual who has a housing loan and other deductions.
If the entire deduction observed is 4,08,333, it seems that the tax under both regimes remains the same for a total income of Rs. 15,00,000 and more than that. The revised new tax regime will be beneficial for the taxpayers whose earnings liable to tax are more than Rs. 5 Crore because of the surcharge of 25 per cent (Surcharge rate is 37% under the old regime above Rs. 5 Cr.of total income), said Neeraj Agarwala, Partner, Nangia Andersen LLP.
If we talk about the calculation, on the deduction of Rs 4.25 lakh, which also counts as the standard deduction of Rs 50,000, Rs 2 lakh interest deduction on a home loan, Rs 1.5 lakh tax deduction under section 80C, Rs 25,000 under section 80D for health.
Comparison Between Old and New Tax Regimes
| Salary excluding Std. Deducti on | Income Tax Liability Under Old Regime (Tax after considering deduction of Sec.24(b), 80C and 80D (for self) | Tax Liability Under Revised New Regime | Saving | What is Better? |
|---|---|---|---|---|
| 10,00,000 | 28,600 | NIL | 28,600 | New |
| 11,00,000 | 49,400 | NIL | 49,400 | New |
| 12,00,000 | 70,200 | NIL | 70,200 | New |
| 15,00,000 | 1,40,400 | 97,500 | 42,900 | New |
| 16,00,000 | 1,71,600 | 1,13,100 | 40,500 | New |
| 20,00,000 | 2,96,400 | 1,92,400 | 1,04,000 | New |
| 25,00,000 | 4,52,400 | 3,19,800 | 1,32,600 | New |
| 30,00,000 | 6,08,400 | 4,75,800 | 1,32,600 | New |
| 35,00,000 | 7,64,400 | 6,31,800 | 1,32,600 | New |
| 40,00,000 | 9,20,400 | 7,87,800 | 1,32,600 | New |
| 45,00,000 | 10,76,400 | 9,43,800 | 1,32,600 | New |
| 50,00,000 | 12,32,400 | 10,99,800 | 1,32,600 | New |
| Note: Deductions include the standard deduction, home loans (Sec.24(b)), 80C, 80D, etc., which is considered Rs. 4,25,000. *Deduction against a Standard deduction | ||||
In the new tax system, you are not allowed to get deductions like 80C, 80D, and 24B, whereas, in the old regime, you are allowed to deduct your taxable earnings by managing deductions and exemptions. This is the major difference between the proposed new and old tax regimes.
Income Tax Benefits Under Old and New Tax Regimes
The new tax regime appears more beneficial for those who do not have investments to claim as tax deductions. But people with an income below 15 lakhs and who benefit from deductions such as interest on home loans, health insurance, and PPF will need to estimate as per their situation.
But the old tax regime could prove to be more efficient. Things may be different according to the situation. However, under the new regime, both people in the high-income range and people who do not have required investments would be beneficial.
Important: A Summary of Tax Calculator with Pros Under New Tax Regime
The most exciting news is that the tax rebate u/s 87A limit will be given where total income (other than special rate income) is Rs 12 lakh under the new tax regime. Therefore, people with a total income (other than special rate income) of up to Rs 12 lakh are not required to pay taxes as per the new regime. However, under the old regime, the 87A rebate is given up to a total income of Rs.5 lakh.
At present, people with income below Rs. 5 lakh do not need to pay any income tax in both regimes. Nirmala Sitharaman said in the budget speech that the tax rebate limit is increased to Rs 12 lakh under the new regime. No tax for people with a total income up to Rs. 12 lakhs.
