The Income Tax Act is swamped with various provisions including numerous exemptions and deductions which makes compliance by the taxpayer a burdensome process, thereby discouraging them to become a genuine return filer and tax payer.
In order to simplify compliance with the income tax law by a taxpayer, there have been amendments in the law to enable assesses to comply with the taxations laws without reaching out to professionals.
The authorities have provided us with an option to choose a new personal tax regime wherein income tax rates will be significantly reduced for individuals/HUFs who forgo certain deductions and exemptions. The aim is to provide significant relief to taxpayers, especially to the middle income level population and make tax filing an easier affair..
Taxpayers can either choose to continue with the existing tax regime (Option 1) or apply for the new tax regime(Option 2). Comparative analysis of the two regimes and characteristics of the new regime have been explained in this article:
Applicability of new tax regime:
What are the options | When to choose | |
Those having business income | Option to choose from the two systems is at the discretion of the taxpayer. However if in any of the subsequent years the chosen option is changed, it can never be changed again from that year onwards. In case there is no more business income in a year, decisions can be made on a yearly basis. | On or before filing return of income in a prescribed form (to be notified later by the department) |
Those having no business income | Option to choose from the two systems is at the discretion of the taxpayer. It can be decided on a year-on-year basis whichever will be more beneficial in that year. | At the time of filing return of income |
Income Slabs | Old Rates (Option 1) | New Rates (Option 2) |
0 to 2.5 Lakhs | Nil | Nil |
2.5 to 5 Lakhs | 5% | 5% |
5 to 7.5 Lakhs | 20% | 10% |
7.5 to 10 Lakhs | 20% | 15% |
10 to 12.5 Lakhs | 30% | 20% |
12.5 to 15 Lakhs | 30% | 25% |
Above 15 Lakhs | 30% | 30% |
Cess and surcharge provisions remain the same irrespective of the option chosen.
In the case of a business income, an individual or HUF cannot claim set-off of the brought forward business loss or unabsorbed depreciation.
The deductions are not available under the new regime to the extent they relate to deductions/ exemptions withdrawn.
This means no lengthy declarations/ proofs to submit to the HR every year.
Example:
Tax under old scheme :
Income and tax slabs | Tax Amount |
0-2.5 Lakhs - Nil | 0 |
2.5 Lakhs to 5 Lakhs : 5% of (5 L - 2.5 L) | 12,500 |
5 Lakhs to 10 Lakhs : 20% of (10 L - 5 L) | 100,000 |
10 Lakhs to 15 Lakhs : 30% (15 L - 10 L) | 150,000 |
262,500 | |
Add cess @ 4% | 10,500 |
Total Tax | 273,000 |
Tax under new scheme :
Income and tax slabs | Tax Amount |
0-2.5 Lakhs - Nil | 0 |
2.5 Lakhs to 5 Lakhs : 5% of (5 L - 2.5 L) | 12,500 |
5 Lakhs to 7.5 Lakhs : 10% of (7.5 L - 5 L) | 25,000 |
7.5 Lakhs to 10 Lakhs : 15% of (10 L - 7.5 L) | 37,500 |
10 Lakhs to 12.5 Lakhs : 20% of (12.5 L - 10 L) | 50,000 |
12.5 Lakhs to 15 Lakhs : 25% of (15 L - 12.5 L) | 62,500 |
187,500 | |
Add cess @ 4% | 7,500 |
Total tax | 195,000 |
Difference between the two is INR 78,000. This much can be saved if the new scheme is opted.
Tax under old scheme :
His Net Taxable Income is Rs 15 lac – Rs 3.77 lac (deductions) = Rs 11.23 lac.
Income and tax slabs | Tax Amount |
0-2.5 Lakhs - Nil | 0 |
2.5 Lakhs to 5 Lakhs : 5% of (5 L - 2.5 L) | 12,500 |
5 Lakhs to 10 Lakhs : 20% of (10 L - 5 L) | 100,000 |
10 Lakhs to 15 Lakhs : 30%(11.23 L - 10 L) | 36,900 |
149,400 | |
Add cess @ 4% | 5,976 |
Total Tax | 155,376 |
Tax under New Tax Slabs:
In the new slab, there are no deductions. So taxable income is the full amount of Rs 15 lac:
Total tax as per above table - INR 195,000
Difference between the two is INR 39,624 roughly 40,000. In this case the old tax regime is beneficial.
You can compare the tax between the two optional tax calculating systems on the official government site : https://www.incometaxindia.gov.in/pages/tools/income-tax-calculator.aspx
Disclaimer:
The contents of this article are for information purposes only and do not constitute any advice and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife Consulting is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.
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