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Which Tax Slab is Better for You: New v. Old Tax Slab

Which tax slab is better for you: new v old tax slab

What is a tax slab?

The Income-tax of India levies tax on people based on a slab system. The slab system prescribes different tax rates for different categories and people based on their income.

This shows a direct relationship between the income of a person and the tax. The percentage of tax increases with an increase in income and vice versa.

Income tax is imposed on the income earned by every person, firm, HUF (Hindu Undivided Family), LLPs, etc. as per the Income-tax Act of India.

For persons, tax is levied according to the slab system if their income is above the basic exemption limit. The income tax slab changes every financial year when the budget is introduced. Income tax has described three categories:

  • Persons aged less than 60 years. It includes both residents and non-residents.
  • Resident Senior Citizens aged between 60 to 80 years.
  • Resident Super Senior Citizens aged above 80 years.

Any amount invested into long-term funds or tax saving schemes is deducted from the gross income.

Tax slabs are bound to change because of fluctuations in the inflation levels. The main purpose of the tax slab is to ensure a fair tax system in the country.

Different Incomes which are taxable in India

  • Any income earned from salary or pension;
  • Income made from house property;
  • Any income earned from business;
  • Income made from capital gain;
  • Income made by betting, lottery, etc.

Old Tax regime v. new tax regime

The old tax slab had four categories from 0% to 30% tax. The highest rate of tax is applicable on income above INR 10 lakh. Whereas the new tax regime has widened the scope with seven categories from 0% to 30%, being highest applicable above INR 15 lakh.

For person less than 60 years of age including resident or non-resident

Old Tax Regime

New Tax Regime u/s 115BAC

Income Tax Slab

Income Tax Rate

Income Tax Slab

Income Tax Rate

Up to ₹ 2,50,000    

Nil

Up to ₹ 2,50,000

Nil

₹ 2,50,001 – ₹ 5,00,000    

5% above ₹ 2,50,000

₹ 2,50,001 – ₹ 5,00,000

5% above ₹ 2,50,000

₹ 5,00,001 – ₹ 10,00,000

₹ 12,500 + 20% above ₹ 5,00,000

₹ 5,00,001 – ₹ 7,50,000

₹ 12,500 + 10% above ₹ 5,00,000

Above ₹ 10,00,000 

₹ 1,12,500 + 30% above ₹ 10,00,000

₹ 7,50,001 – ₹ 10,00,000

₹ 37,500 + 15% above ₹ 7,50,000

 

 

₹ 10,00,001 – ₹ 12,50,000

₹ 75,000 + 20% above ₹ 10,00,000

 

 

₹ 12,50,001 – ₹ 15,00,000

₹ 1,25,000 + 25% above ₹ 12,50,000

 

 

Above ₹ 15,00,000

₹ 1,87,500 + 30% above ₹ 15,00,000

 

For person between the age of 60-80 years including resident or non-resident

Old Tax Regime

New Tax Regime u/s 115BAC

Income Tax Slab

Income Tax Rate

Income Tax Slab

Income Tax Rate

Up to ₹ 3,00,000

Nil

Up to ₹ 2,50,000

Nil

₹ 3,00,001 – ₹ 5,00,000

5% above ₹ 3,00,000
 

₹ 2,50,001 – ₹ 5,00,000

5% above ₹ 2,50,000

₹ 5,00,001 – ₹ 10,00,000

₹ 10,000 + 20% above ₹ 5,00,000

₹ 5,00,001 – ₹ 7,50,000

₹ 12,500 + 10% above ₹ 5,00,000

Above ₹ 10,00,000

₹ 1,10,000 + 30% above ₹ 10,00,000

₹ 7,50,001 – ₹ 10,00,000

₹ 37,500 + 15% above ₹ 7,50,000

 

 

₹ 10,00,001 – ₹ 12,50,000

₹ 75,000 + 20% above ₹ 10,00,000

 

 

₹ 12,50,001 – ₹ 15,00,000

₹ 1,25,000 + 25% above ₹ 12,50,000

 

 

Above ₹ 15,00,000

₹ 1,87,500 + 30% above ₹ 15,00,000

 

For person including residents or non-residents aged 80 years or more

Old Tax Regime

New Tax Regime u/s 115BAC

Income Tax Slab

Income Tax Rate

Income Tax Slab

Income Tax Rate

Up to ₹ 5,00,000  

Nil

Up to ₹ 2,50,000

Nil

₹ 5,00,001 – ₹ 10,00,000

20% above ₹ 5,00,000

₹ 2,50,001 – ₹ 5,00,000

5% above ₹ 2,50,000

Above ₹ 10,00,000 

₹ 1,00,000 + 30% above ₹ 10,00,000

₹ 5,00,001 – ₹ 7,50,000

₹ 12,500 + 10% above ₹ 5,00,000

 

 

₹ 7,50,001 – ₹ 10,00,000

₹ 37,500 + 15% above ₹ 7,50,000

 

 

₹ 10,00,001 – ₹ 12,50,000

₹ 75,000 + 20% above ₹ 10,00,000

 

 

₹ 12,50,001 – ₹ 15,00,000

₹ 1,25,000 + 25% above ₹ 12,50,000

 

 

Above ₹ 15,00,000

₹ 1,87,500 + 30% above ₹ 15,00,000

 

Deductions/Exemptions that are not allowed

There are some exemptions and deductions mentioned by the government which are not allowed under the new tax regime.

  • LTA – Leave travel allowance;
  • HRA – House rent allowance;
  • Deductions on salary;
  • Interest on home loan;
  • Medical insurance, education loans, etc.
  • Some investments or expenses are given in Chapter VI-A like Public provident fund, life insurance premium, etc.

The taxpayer needs to evaluate and check before switching to a new tax regime.

Which tax slab is better?

If we see the deductions, rebates, quantum of income differs from person to person. Thus, we cannot say anyone’s regime is better because it will vary from person to person. Taxpayers should once analyze and compare their tax liability under both tax slabs.

If a taxpayer has investments in tax saving schemes, medical insurance policy, education loans, etc. then he should choose the old tax slab system.

Let us understand it better, through an illustration:

Taxpayer 1

 

Old Tax Regime (in INR)

New Tax Regime (in INR)

Income from Salary

20,00,000

20,00,000

Less: Exemption for HRA

1,20,000

Not applicable

Less: Exemption for LTA

60,000

Not applicable

Less: Standard Deduction

50,000

Not applicable

Less: Deduction under Section 80C for PF

160,000

Not applicable

Net taxable Income

16,10,000

20,00,000

We can see in the above illustration that the old tax regime is beneficial to Taxpayer 1.

 

Taxpayer 2

 

Old Tax Regime (in INR)

New Tax Regime (in INR)

Income from Salary

20,00,000

20,00,000

Less: Standard Deduction

70,000

NA

Less: Deduction under Section 80C for EPF

140,000

NA

Net Income chargeable under the head salary

17,90,000

20,00,000

For taxpayer 2, where deductions for HRA and LTA are not applicable, the new tax regime is better.

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