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Guidelines to Help Choose Between

Old Vs New Tax Regime


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.

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.

Difference between the two tax regimes

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

and for parents etc.


None of the above can be claimed under the new tax regime. A total of 70 exemptions have been done away with in

the new tax regime.

Steps to opt for your preferred Tax Regime:

Step 1: Understand what suits you best

If your taxable income is below 5 lakhs or above 15 lakhs, then tax rates are same in both; hence the older regime

that allows exemptions is more suited.

Step 2: Check the exemptions

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.

Step 3: Do the Math

Based on your net taxable income post exemptions/deductions, calculate total income tax under old as well as new

regime.

Step 4: Remember to plan well

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

taxpayers during the current financial year (2020-21)

Tax as per Old Tax Regime Tax as per New Tax Regime

Income 750000 750000

Standard Deduction 50000 Not Applicable

Deductions Under Section 80C 150000 Not Applicable

Deduction Under Section 80D (Self & Parents) 25000 Not Applicable

Interest on Housing Loan (Assuming taxpayer 0 Not Applicable

has not availed any housing loan)

Taxable Income (After all Exemptions) 525000 750000

Tax as per Slabs (Mentioned Above) 12500+5000 12500+25000

Total Tax Payable As per the Income Tax 17500 37500

Slabs

Tax as per Old Tax Regime Tax as per New Tax Regime

Income 1000000 1000000

Standard Deduction 50000 Not Applicable

Deductions Under Section 80C 150000 Not Applicable

Deduction Under Section 80D (Self & Parents) 25000+30000 Not Applicable

Interest on Housing Loan 200000 Not Applicable

Taxable Income (After all Exemptions) 545000 1000000

Tax as per Slabs (Mentioned Above) 12500+9000 12500+25000+37500

Total Tax Payable As per the Income Tax 21500 75000

Slabs
Tax as per Old Tax Regime Tax as per New Tax Regime

Income of INR 1500000 1500000 1500000

Standard Deduction 50000 Not Applicable

Deductions Under Section 80C 150000 Not Applicable

Deduction Under Section 80D (Self & Parents) 25000+30000 Not Applicable

Interest on Housing Loan 200000 Not Applicable

Taxable Income (After all Exemptions) 1045000 1500000

Tax as per Slabs (Mentioned Above) 12500+100000+13500 12500+25000+37500+50000+62500

Total Tax Payable As per Income Tax Slabs 126000 187500

Tax as per Old Tax Regime Tax as per New Tax Regime

Income of INR 2000000 2000000 2000000

Standard Deduction 50000 Not Applicable

Deductions Under Section 80C 150000 Not Applicable

Deduction Under Section 80D (Self & 25000+30000 Not Applicable

Parents)

Interest on Housing Loan 200000 Not Applicable

Taxable Income (After all Exemptions) 1545000 2000000

Tax as per Slabs 12500+100000+150000+13500 12500+25000+37500+50000+62500+150000

Total Tax Payable As per Income Tax 276000 337500

Slabs

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