This year, all the income taxpayers are facing the same question while filing their returns, is it the new tax regime or the old tax regime? Since last year, Finance Minister Nirmala Sitharaman mentioned this in her budget speech and implemented a new tax system.
It has been a year since the new tax system was implemented. For the first time this year, taxpayers are getting confused as they have to choose between the new tax system or the old tax system while filing their income tax returns.
Let us first understand the difference between the two tax systems.
Difference between the two tax systems:
|
Sr No. |
Annual Income |
Old tax system |
New tax system |
|
01 |
2.5 lakhs |
No tax |
No tax |
|
02 |
2.5 to 5 lakh |
5% tax |
5% tax |
|
03 |
5 to 7.5 lakh |
20% tax |
10% tax |
|
04 |
7.5 to 10 lakh |
20% tax |
15% tax |
|
05 |
10 to 12.5 lakh |
30% tax |
20% tax |
|
06 |
12.5 to 15 lakh |
30% tax |
25% tax |
|
07 |
15 lakh and above |
30% tax |
30% tax |
In the new tax system, income up to Rs 15 lakh is divided into 6 different tax rates, which are divided into only 3 tax rates under the old tax system.
At the same time, some of the deductions made in the old tax system cannot be taken into account in the new tax system.
For example the income statement:
| old tax system | new tax system, | |
| the annual salary of | 14,00,000 | 14,00,000 |
| Bank savings account interest rate (annual) | 1,000 | 1,000 |
| Total income | 14,01,000 | 14,01,000 |
| Less: standard deduction | 50,000 | 0 |
| Balance | 13,51,000 | 14,01,000 |
| Less: Deduction u/s80 | 150,000 | 0 |
| Less: 80 TTA | 1,000 | 0 |
| Taxable income | 12,00,000 | 14,01,000 |
| Tax on the income | 1,72,500 | 1,62,750 |
| Add: Health and education cess | 6,900 | 6,510 |
| Total | 1,79,400 | 1,69,260 |
Even though there is no deduction in the above statement, the tax under the new tax system seems to have been reduced.
For those whose income is up to Rs 5 lakh, the rebate of 87-A i.e. up to Rs 12,500 is applicable under both the tax systems. Under the new tax system, there is no separate classification for NRIs, senior citizens, and senior citizens.
Details of the deductions that are not available in the new tax system are given below.
Deduction of interest on home loan, a standard rebate of Rs 50,000 on salary will not be available in the new tax system, profession tax or entertainment allowance will not be deductible, no exemption on LTC (Leave Travel Concession), some exemptions under Section 10 will not be deductible. Section 80C to 80U will also not be deductible.
However, both interests on provident funds and interest on Sukanya Samriddhi Savings are waived under both tax systems.
Before filing this year’s income tax return, You should choose the tax system option which is beneficial for you with the comparative statement. The new tax system is simpler and more convenient for the average taxpayer, as well as checking your tax returns with the old tax system, making it easier to choose between the old and new tax systems.
