Tax Deduction & Exemption You Have To Leave in the New Tax Regime

Mon, 30 Aug 2021 06:11:34 +0000

The Buyt Desk

Every taxpayer will have to choose a tax regime suitable to them. An individual needs to decide whether they want to pay tax as per the old or the new tax regime. If you continue to pay your taxes as per the old regime you will enjoy the benefits of various tax deductions and exemptions. But if you are willing to let go of these tax deductions then you can choose the new regime which will give you slightly lower tax rates. There are 3 tax slabs in the old tax regime and 6.

Old Tax Regime

Income Slab	Tax
Up to Rs 2.5 lakhs	Nil
Rs 2.5 lakh to 5 lakh	5%
Rs 5 lakh to 10 lakh	20%
Income above Rs 10 lakhs	30%

New Tax Regime

Up to Rs 2.5 Lakh	Nil
Rs 2.5 to 5 Lakh	5%
Rs 5 to 7.5 Lakh	10%
Rs 7.5 to 10 Lakh	15%
Rs 10 to 12.5 Lakh	20%
Rs 12.5 to 15 Lakh	25%
Above Rs 15 Lakhs	30%

In addition to this, there will be a Health and Education Cess of 4% in both the regime. If the income crosses the Rs 50 Lakhs then a 10% Surcharge on tax and a 15% surcharge on tax if earning crosses Rs 1 Crore.

The deduction that you will have to let go if you chose the new tax regime is as following-

Standard deduction of Rs. 50,000
Rebate on 80C investment of Chapter VI A of Rs 1.5 lakh such as insurance premium payment, PPF, EPF
House Rent Allowance (HRA) which is available according to the salary structure
Health Insurance Premium of Rs 25,000 under section 80D of IT ACT
Home loan interest rebate up to 2 lakhs,
The first home buyer gets an additional deduction of Rs 1.5 lakh under section 80EEA
Saving Bank Interest
Education Loan Interest
Rs 50,000 deduction on National Pension System
Investment in National Savings Scheme (NSC)

The exemption that will continue to be available in the new tax regime-

Rent 30% Standard Deduction
Employer’s contribution to NPS under section 80CCD 2
Agricultural Income
Maturity of insurance under section 10(10D)
Income from life insurance: If the insurance cover is 10 times the annual premium
Retrenchment compensation (compensation on retrenchment): Rs 5 lakh
VRS Proceed: Rs 5 lakh
Leave encashment on retirement: Rs 3 lakh (no limit for government employees)
Death Maturity Amount
Sukanya Samriddhi and PPF maturity amount
Scholarship
Gratuity up to Rs 20 lakh

Salaried taxpayers have to decide at the beginning of the financial year whether they will pay tax in the old tax system or the new one. The option can be changed every year if desired.

If you have just started out in your career and you don’t claim exemptions like 80C, 80D, HRA, home loan interest, i.e. neither you have a home loan nor you make tax-saving investments, then the new tax regime is the right one for you.

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How to Choose Between the Old and New Tax Regime?

Fri, 02 Apr 2021 04:19:46 +0000

The Buyt Desk

If you are a salaried individual then with every new financial year you need to be prepared to choose between the new and the old tax regime. Alongside the existing tax regime government introduced a new tax regime in Budget 2020. The new tax regime gives more tax rates as compared to the old tax regime. If you wish to continue with the old tax regime which you have been already following then you need not inform your employer. But if you want to shift to the new regime you must intimate this to the HR of your company.

This chart explains the way tax rates are applicable in the new and the old tax regime.

INCOME TAX SLABS	OLD REGIME (WITH EXEMPTIONS AND DEDUCTIONS)	NEW REGIME (WITHOUT EXEMPTIONS AND DEDUCTIONS)
UPTO 2.5 LAKH	NIL	NIL
2.5 – 5 LAKH	5%	5%
5 – 7.5 LAKH	20%	10%
7.5 – 10 LAKH	20%	15%
10 – 12.5 LAKH	30%	20%
12.5 – 15 LAKH	30%	25%
ABOVE 15 LAKH	30%	30%

How to select the right tax regime?

Well, there is no right or wrong in any of the tax regimes. It will vary from person to person depending upon their income, investment, and deduction that he/she gets. Here is a list of things that you should look at –

Tax Rates – The Old Tax regime has only 3 tax rates – 5%, 20 % and 30%. Whereas the new regime has just double the number of tax rates ranging from 5%, 10%, 15%, 20%, 25% and 30%.You may find that as far as tax rates are concerned the new regime gives you a concessional rate of tax but it comes with conditions.
Forego Exemption and Deduction – The aim of the new tax regime is to simplify tax filing. In a bid to do so the government has removed all the tax-saving benefits in the new regime. Opting for a new regime means you will forego around 70 exemptions and deduction of income tax. Like 80C deduction, standard deduction, HRA, housing loan interest benefit, and so on.

Lack of tax planning- The new tax regime is good for those people who do not invest in the tax-saving instrument and don’t claim tax deduction. There are many avenues of investment that can give you an income tax deduction and help you in saving tax. But then it is a possibility that an individual after covering all his/her expenses is never left with money to invest. For them, the new tax regime works well.
Allowed deduction- Only two deductions can be claimed in the new tax regime i.e 80CCD (2) – employer contribution to NPS and Section 80JJA which is for new employment.

Who can opt for and who can’t ?

A salaried employee can switch between both the regimes every year but an individual having income from business and profession cannot switch every year, they will get only one chance to choose in a lifetime.

Hope we have helped you in understanding which tax regime will work for you.

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