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If your taxable income is below 5 lakhs or above 15 lakhs, then tax rates are same in both.
Budget 2020 has given taxpayers an option to continue with the existing tax regime or opt for the new proposed tax
regime. Employees today are conflicted as to which regime they should really opt for and why? While under the old
tax regime the salaried individuals can continue paying taxes, as they had been doing till now; under the new regime,
they will be liable to pay lower taxes, provided they forego their deductions and exemptions.
Deductions/Exemptions
Main exemptions that taxpayers will have to forego if they opt for the new regime are Standard Deduction of Rs.
50,000 to salaried tax payers, House Rent Allowance for individuals staying in rented accommodation, Interest on
housing loan for self-occupied property, Leave Travel Allowance twice in block of four years, the most commonly
claimed deduction under Section 80C for Provident fund contribution, Life insurance premium, School Tuition fees
for children, ELSS Mutual Funds, PPF, NSC etc., Deductions under Section 80 D like Mediclaim for self & dependents
If your taxable income is below 5 lakhs or above 15 lakhs, then tax rates are same in both; hence the older regime
Out of all the exemptions that have been removed, check how many are applicable for you and how much money
you can save by opting for those. This will help you in the next step.
Based on your net taxable income post exemptions/deductions, calculate total income tax under old as well as new
regime.
It’s important to note that it is possible to change tax regimes every financial year, as both will exist simultaneously.
Few taxpayers may decide to choose the new tax regime as it’s simple to follow and sometimes translates to lower tax
liability. However, in the long run, investments have financial benefits and taxpayers will want to go for the old regime
as that will be more beneficial. Taxpayers who already have investments under various sections applicable in old tax
regime should opt for old tax regime in place of new tax regime as it reduces the tax burden on the taxpayer.
Here are few of the illustrations at various income level on how the old and new tax regime will impact the
Tax as per Old Tax Regime Tax as per New Tax Regime
Deduction Under Section 80D (Self & Parents) 25000 Not Applicable
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Tax as per Old Tax Regime Tax as per New Tax Regime
Deduction Under Section 80D (Self & Parents) 25000+30000 Not Applicable
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Tax as per Old Tax Regime Tax as per New Tax Regime
Deduction Under Section 80D (Self & Parents) 25000+30000 Not Applicable
Tax as per Old Tax Regime Tax as per New Tax Regime
Parents)
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