The Indian income tax system levies tax on individual taxpayers depending on their income level. From the financial year 2020-21, the method of levying taxes changed. A new tax regime was announced wherein the tax rates were reduced quite significantly along with a huge reduction in tax saving opportunities as well.
Old vs new tax regime which is better? Let’s read on to find out more as the case may be different for different income slabs.
In the blog, we will first learn about the difference between the tax rates of both regimes, the difference in the deductions available, and practical examples of how the new regime will make a difference for each tax slab.
Taxpayers with annual income between RS.5 lakhs to Rs.10 lakhs are taxed at 20%, under the old regime. And in the new regime, they will be taxed at half that rate i.e. 10%. Also, those with an annual income of Rs.7.5 lakhs to Rs.10 lakhs will have to pay a 15% income tax.
However, if the taxpayer gets old tax regime benefits from exemptions and his/her net tax payable is less, he/she can choose to continue with the old tax regime.
Let’s look at the old and new tax slabs for persons aged below 60 years of age.
| Income tax slab Old Regime | Annual Income | New Regime FY |
| Nil | Up to Rs.2.5 lakhs | Nil |
| 5% | Rs.2.5 – 5 lakh | 5% |
| 20% | Rs.5 – 7.5 lakh | 10% |
| Rs. 7.5 – 10 lakh | 15% | |
| 30% | Rs. 10-12.5 lakh | 20% |
| Rs. 12.5-15 lakh | 25% | |
| Rs. 15 and above | 30% |
Exemptions mean the taxpayer is free from the tax burden on certain incomes. For example, you do not have to pay tax on income from agriculture.
Deduction means removing certain investments and expenditures the taxpayer makes and then calculating the gross income. For example, if you pay Rs. 20,000 as a health insurance premium. You can deduct this amount from your total income.
In the ‘old tax regime,’ there are 120 exemptions. Taxpayers do not benefit from all of them. Most of them complicate the direct tax system. After a thorough study, the Ministry of Finance has removed around 70 exemptions. Old vs new tax regime for salaried employees is a new change. Let’s view all deductions and exemptions that are available in each of the two regimes.
Here’s the list (not exhaustive) of exemptions-
One can still claim deduction under sub-section ( 2) of section 80CCD which is basically an employer’s contribution towards an employee’s account in NPS and section 80JJAA ( for new employment).
Also note that if the employee’s contribution to EPF and NPS exceeds more than Rs 7.5 Lakh, in the financial year in question, then the employee is liable to pay tax.
| Annual Income of Rs.7,50,000 (without exemption) | ||||
| Old Regime | New Regime | |||
| Income tax slab | Tax Rate | Tax (Rs.) | Tax Rate | Tax (Rs.) |
| Up to Rs. 2,50,000 | 0 | 0 | 0 | 0 |
| 250001 – 500000 | 5 | 12500 | 5 | 12500 |
| 500001 – 750000 | 20 | 50000 | 10 | 25000 |
| Sum | 62500 | 37500 | ||
| Health and Education cess | 4 | 2500 | 4 | 1500 |
| Tax Payable | 65000 | 39000 | ||
| Annual Income of Rs.7,50,000 (with exemption) | ||||
| Annual Income | 750000 | |||
| Exemptions u/s 80C | -150000 | |||
| u/s 80CCD(1B) | -50000 | |||
| u/s 80D | -50000 | |||
| HRA | -10000 | |||
| Taxable Income | 4,90,000 | |||
| Old Regime | New Regime | |||
| Income tax slab | Tax Rate | Tax (Rs.) | Tax Rate | Tax (Rs.) |
| Up to Rs.2,50,000 | 0 | 0 | 0 | 0 |
| 250001 – 500000 | 5 | 12500 | 5 | 12500 |
| 500001 – 750000 | 0 | 0 | 10 | 25000 |
| (-) Rebate | -12500 | |||
| Sum | 0 | 37500 | ||
| health and education cess | 4 | 0 | 4 | 1500 |
| Tax Payable | 0 | 39000 | ||
| Annual Income of Rs.10,00,000 (without exemption) | ||||
| Old Regime | New Regime | |||
| Income tax slab | Tax Rate | Tax (Rs.) | Tax Rate | Tax (Rs.) |
| Up to Rs.2,50,000 | 0 | 0 | 0 | 0 |
| 250001 – 500000 | 5 | 12500 | 5 | 12500 |
| 500001 – 750000 | 20 | 50000 | 10 | 25000 |
| 750001 – 1000000 | 20 | 50000 | 15 | 37500 |
| Sum | 112500 | 75000 | ||
| Health and education cess | 4 | 4500 | 4 | 3000 |
| Tax Payable | 1,17,000 | 78,000 | ||
| Annual Income of Rs.10,00,000 (with exemption) | ||||
| Annual Income | 10,00,000 | |||
| Exemptions u/s 80C | -1,50,000 | |||
| u/s 80CCD(1B) | -50,000 | |||
| u/s 80D | -75,000 | |||
| Taxable Income | 7,25,000 | |||
| Old Regime | New Regime | |||
| Income tax slab | Tax Rate | Tax (Rs.) | Tax Rate | Tax (Rs.) |
| Up to Rs.2,50,000 | 0 | 0 | 0 | 0 |
| 250001 – 500000 | 5 | 12500 | 5 | 12500 |
| 500001 – 750000 | 20 | 50000 | 10 | 25000 |
| 750001 – 1000000 | 0 | 0 | 15 | 37500 |
| Sum | 62500 | 75000 | ||
| health and education cess | 4 | 2500 | 4 | 3000 |
| Tax Payable | 65,000 | 78,000 | ||
| Annual Income of Rs.12,50,000 (without exemption) | ||||
| Old Regime | New Regime | |||
| Income tax slab | Tax Rate | Tax (Rs.) | Tax Rate | Tax (Rs.) |
| Up to Rs.2,50,000 | 0 | 0 | 0 | 0 |
| 250001 – 500000 | 5 | 12500 | 5 | 12500 |
| 500001 – 750000 | 20 | 50000 | 10 | 25000 |
| 750001 – 1000000 | 20 | 50000 | 15 | 37500 |
| 1000001 – 1250000 | 30 | 75000 | 20 | 50000 |
| Sum | 187500 | 125000 | ||
| Health and education cess | 4 | 7500 | 4 | 5000 |
| 195000 | 130000 | |||
| Annual Income of Rs.12,50,000 (with exemption) | ||||
| Annual Income | 1250000 | |||
| Exemptions u/s 80C | -150000 | |||
| u/s 80CCD(1B) | -50000 | |||
| u/s 80D | -75000 | |||
| Taxable Income | -975000 | |||
| Old Regime | New Regime | |||
| Income tax slab | Tax Rate | Tax (Rs.) | Tax Rate | Tax (Rs.) |
| Up to Rs.2,50,000 | 0 | 0 | 0 | 0 |
| 250001 – 500000 | 5 | 12500 | 5 | 12500 |
| 500001 – 750000 | 20 | 50000 | 10 | 25000 |
| 750001 – 1000000 | 20 | 50000 | 15 | 37500 |
| 1000001 – 1250000 | 0 | 0 | 20 | 50000 |
| Sum | 112500 | 125000 | ||
| Health and education cess | 4 | 4500 | 4 | 5000 |
| Tax Payable | 117000 | 130000 | ||
| Annual Income of Rs.15,00,000 (without exemption) | ||||
| Old Regime | New Regime | |||
| Income tax slab | Tax Rate | Tax (Rs.) | Tax Rate | Tax (Rs.) |
| Up to Rs.2,50,000 | 0 | 0 | 0 | 0 |
| 250001 – 500000 | 5 | 12500 | 5 | 12500 |
| 500001 – 750000 | 20 | 50000 | 10 | 25000 |
| 750001 – 1000000 | 20 | 50000 | 15 | 37500 |
| 1000001 – 1250000 | 30 | 75000 | 20 | 50000 |
| 1250001 – 1500000 | 30 | 75000 | 25 | 62500 |
| Sum | 262500 | 187500 | ||
| Health and education cess | 4 | 10500 | 4 | 7500 |
| 273000 |
195000 |
|||
| Annual Income of Rs.15,00,000 (with exemption) | ||||
| Annual Income | 1500000 |
|
||
| Exemptions u/s 80C | -150000 | |||
| u/s 80CCD(1B) | -50000 | |||
| u/s 80D | -75000 | |||
| Taxable Income | -1225000 | |||
| Old Regime | New Regime | |||
| Income tax slab | Tax Rate | Tax (Rs.) | Tax Rate | Tax (Rs.) |
| Up to Rs.2,50,000 | 0 | 0 | 0 | 0 |
| 250001 – 500000 | 5 | 12500 | 5 | 12500 |
| 500001 – 750000 | 20 | 50000 | 10 | 25000 |
| 750001 – 1000000 | 20 | 50000 | 15 | 37500 |
| 1000001 – 1250000 | 30 | 75000 | 20 | 50000 |
| 1250001 – 1500000 | 0 | 0 | 25 | 62500 |
| Sum | 187500 | 187500 | ||
| Health and education cess | 4 | 7500 | 4 | 7500 |
| Tax payable | 1,95,000 | 1,95,000 | ||
Both systems have their own sets of pros and cons. The old system has many exemptions and deductions under numerous sections – availing a few of these required people to invest in tax-saving investment options, which helped inculcate a good habit of investing. On the other hand, the new system gives people more flexibility and tries to simplify the process.
It also varies based on which slab you are in as well. However, since the system is new, it makes sense to consult a competent tax expert who can suggest the optimal tax-saving route for you.
Finance Minister Nirmala Sitharaman in her budget has said that gradually the exemptions and deductions will be reviewed and reduced in number as the government wants a simple Income tax system in the country. Whether or not the new system is received well after we compare old vs new tax regimes in the upcoming financial year, will say a lot about the tax laws that may get implemented in the future.
Happy Investing!
Disclaimer: The views expressed in this post are that of the author and not those of Groww.