The Union Budget for 2020-21, which was announced on Feb 1, was themed around agriculture reliefs, holistic development, and overall economic revival. Towards the latter, the Finance Minister announced sweeping tax reliefs (optional) across almost all income tax slabs (barring the above-Rs-15-lakhs-income slab), but these reliefs came with a condition.
Let’s explore the new tax rates and find out whether you should move to the new tax regime or stay with the old one.
The Difference between the Old and the New Tax Regimes
Union Budget 2020-21 offers taxpayers a choice to either pay tax under the new regime of lower income tax rates (except for the above-Rs-15-lakhs-income slab) by foregoing the tax exemptions/deductions they have been enjoying OR continue to pay tax under the existing income tax rates by claiming the exemptions and deductions (for example, 80(C), 80(D), HRA, LTA, and so on) that are applicable.
In effect, the more exemptions an individual claims, the less likely s/he is to benefit from the new optional tax regime. Note, however, that the choice of which regime to choose will vary from person to person and from profession to profession.
Having said that, it’s also important to know that basic calculations show that if you are a salaried individual who claims a large number of exemptions (for example, 80(C), 80(D), interest on housing loan, HRA, LTA, special allowance, and so on), you are likely to be better off in the existing income tax regime.
What Are the New Tax Rates?
Here’s a look at the new tax rates versus the old tax rates:
- Under the new tax regime, taxpayers will have to pay no tax for annual income up to Rs 2.5 lakhs
- Individuals earning a salary between Rs 2.5 and 5 lakhs will pay 5% tax
- Income between Rs 5 and 7.5 lakhs will be taxed at 10%
- Individuals earning between Rs 7.5 and 10 lakhs will attract 15% tax
- Taxpayers will have to pay 20% and 25% tax for incomes between Rs 10 – 12.5 lakhs and Rs 12.5 – 15 lakhs, respectively
- Income above Rs 15 lakhs will be taxed at 30%
That’s Good to Know, But I Want to Save Tax Now!
As mentioned earlier, some simple calculations show that if you are a salaried individual who claims tax exemptions and deductions like those under Sections 80(C) and 80(D), interest on housing loan, HRA, LTA, special allowance, and so on, you are likely to be better off in the existing income tax regime.
However, it may vary from case to case. So, rely on the experts at OneInsure to guide you through the new tax regime. Contact us at 86559 86559 or firstname.lastname@example.org.
In case you want to save tax, a very good choice is investments under Section 80(C). And what better avenue to save tax than by providing a safety net to your family in case of your absence while simultaneously building a corpus for your future, be it for your retirement, for your child’s education/marriage, or for a foreign vacation.
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