JOIN USNew vs old tax regime under Budget 2020: Which one to choose considering exemptions
Finance Minister, Nirmala Sitharaman presented Union Budget 2020 on Saturday, and one of the key highlights was the new income tax regime.
Two income tax regimes, the latest one and the old or existing one, are going to be operational simultaneously. But which one to opt for?
The new tax slab under Budget 2020 offers some major cuts in income tax, but devoids the tax-payers of many exemptions. On the other side, the old tax regime has higher tax rates but offers a host of exemptions and deductions.
These complications are likely to make the commoners confused as to which tax regime they should go for. According to the experts, a tax-payer will now have to make a thorough analysis of income, expenditure, and exemptions under the two tax regimes, based on which, he or she should decide whether to choose the new tax format or stay with the old one.
Also read: How middle class-friendly is Budget 2020?
"Check which exemptions and deductions you are eligible for. Then do the calculations on whether your tax liability will be lower in the new regime or the old one. If your income is less than Rs 8.5 lakh and you only claim Section 80C deduction, then don’t go for the new regime. On the other hand, if your income is more than Rs 8.5 lakh, and you have only been claiming Section 80C deduction, it may make sense to opt for the new regime," Business Standard quoted Naveen Wadhwa, DGM, Taxmann.com quoted as saying.
NEW TAX SLAB
Under the new tax slab, individuals in the income bracket of Rs 5 lakh-Rs 7.5 lakh will have to pay a tax of 10 per cent against the earlier tax of 20 per cent. Tax has also been cut down to 15 per cent from 20 per cent for people in the income bracket of Rs 7.5 lakh- Rs 10 lakh. Similarly, taxpayers in the income bracket of Rs 10 lakh- Rs 12.5 lakh will be charged 20 per cent tax, which was earlier 30 per cent. Individuals earning Rs 12.5 lakh to Rs 15 lakh will have to pay tax of 25 pre cent against the earlier 30 per cent. The 30 per cent tax for income above Rs 15 lakh remains unchanged. While there is no income tax for individuals earning upto Rs 2.5 lakh, it is 5 per cent for people earning Rs 2.5 lakh-Rs 5 lakh.
SOME OF THE EXEMPTIONS AVAILABLE UNDER NEW TAX REGIME
- Leave encashment on retirement
- Retirement compensation
- Death-cum-retirement benefit
- Employer's share of Employee Provident Fund
- Money received as scholarship for education
- Amount received on VRS upto Rs 5 lakh
- Money received on closure of National Pension Scheme account or short-term withdrawal
(List not exhaustive)
MAJOR EXEMPTIONS THAT ARE REMOVED UNDER NEW TAX SLAB
Section 80C (investments in PF, NPS, Life insurance premium, etc.), Section 80D (medical insurance premium), tax breaks on House Rent Allowance and interest paid on house loans, leave travel allowance, etc. [List not exhaustive]