Old VS New Tax Regime- Which one to opt for?

 Old VS New Tax Regime- Which one to opt for?

The Finance Act 2020 announced a new tax regime under Section 115BAC in order to make taxation simpler for people. This new tax regime has given an option to individuals and HUF taxpayers to pay income tax at lower rates. This was long demanded by most taxpayers, however, the option for this concessional tax regime came with a huge cost, it required the taxpayer to forego certain specified deductions. Also, as of now, individuals can choose the new regime where the rates are lower but there are no exemptions or deduction or choose to continue with the regular old regime, where exemptions and rebates can be claimed and applicable tax as per the income slab will be levied. But how does one decide which regime to go for? Let’s find out!

How can assessee opt for new or old regime? 

• If an individual/HUF opts for new tax regime for FY 2020-21, then form 10IE has to be filed at the time of filing ITR for FY 2020-21 to inform the tax department that they are choosing the new tax regime.
• As per the income tax laws, an individual having business income shall submit this form before the due date of filing ITR i.e., July 31 (unless extended by the government).
• The due date of filing ITR for FY 20-21 has been extended till 30^th September, 2021.
• For salaried individuals, the form can be submitted before/at the time of ITR filing, even if ITR is filed after the due date.

What information is required to be furnished in Form 10-IE?

The individual/HUF is required to furnish the following information in Form 10-IE:

• Name of the individual/HUF
• Address
• PAN
• The financial year for which option is exercised
• If the individual/HUF has income under business or profession
• Date of birth
• Nature of business/profession, (mandatory if an individual is having income from business and profession)
• Whether the individual/ HUF has any Unit in International Financial Services Centre (IFSC), as referred to in section 80LA(1A)
• Whether option under clause section 115BAC(5)(i) has been exercised in Form 10-IE for any earlier previous year/ years and is now being withdrawn (to be activated if withdrawal option is selected)

 

Following is the Comparison between old and New Tax Regime –

Sr. No.	Particulars	Old Tax Regime	New tax Regime
1	Income tax slabs:	Rate	Rate
	Up to Rs.2,50,000	Nil	Nil
	Rs.2,50,001 to Rs.5,00,000	5%	5%
	Rs.5,00,000 to Rs.7,50,000	20%	10%
	Rs.7,50,001 to Rs.10,00,000	20%	15%
	Rs.10,00,001 to Rs.12,50,000	30%	20%
	Rs.12,50,001 to Rs.15,00,000	30%	25%
	Rs.15,00,001 and above	30%	30%
2	Surcharge on income: Upto Rs.50 lacs Above Rs.50 lacs to Rs.1 Crore Above Rs.1 Crore	Nil 10% 15%	Nil 10% 15%
3	Health & Education Cess	4% on (Tax + Surcharge thereon)	4% on (Tax + Surcharge thereon)
4	Rebate u/s 87 A	Maximum rebate of Rs.12,500 if the taxable income is upto Rs.5 lacs	Maximum rebate of Rs.12,500 if the taxable income is upto Rs.5 lacs
5	Standard deduction (For salaried person)	Rs.50,000/-	Not available
6	Deductions like – LTA, HRA, Professional Tax, Housing Loan – Principal & Interest, Tuition Fees, Chapter VI-A deductions	Available	Not available
7	Deduction on contribution to National Pension Scheme (NPS) (Benefit available for Salaried person)	For Non-Government Employee, Maximum deduction allowed is lower of – 1)      10% of salary (Basic + Dearness Allowance) 2)      Rs.50,000	Deduction is allowed on Employer’s contribution to Employee’s NPS A/c. Deduction of upto 10% of Salary (Basic + Dearness Allowance) qualifies for deduction u/s 80 CCD (2) irrespective of any limit. Employee’s contribution to NPS would not attract any deduction.

 

Making your choice between the two:

In light of the above and considering the new income tax regime, if taxpayers want to opt for the concessional new tax regime, they may evaluate both the regimes. A taxpayer who is looking for flexibility in investment choices may consider opting for the new tax regime. However, it is advisable to do a comparison between the two regimes.

 

Based on Gross Income and deductions, here is a quick summary of which taxation scheme to go ahead with while filing your Income Tax return for AY 2021-22

Sr. No.	Gross Income (Rs.)	Deductions (Rs.)	Scheme Beneficial
1	Upto Rs.7,50,000	> Rs.1,25,000	Old
2	Rs.10,00,000	> Rs.1,87,000	Old
3	Rs.12,50,000	> Rs.2,08,000	Old
4	> Rs.15,00,000	> Rs.2,50,000	Old

 

Individuals with income under head Salary, House Property, Capital Gains and Other Sources can choose any regime which is beneficial to them. This choice can be exercised every year meaning thereby they can switch between the two regimes every year based on the regime which is beneficial for that particular financial year.

Note that Individuals who have income from business or profession cannot switch between the new and old tax regimes every year. If they opt for the new taxation regime, such individuals get only one chance in their lifetime to go back to the old regime. Also, once you switch back to existing tax regime, you will not be able to opt for new tax regime unless income from business of profession ceases to exist.

What deductions are not allowed in the new tax regime?

The following are the deductions and exemptions you cannot claim under the new tax system:

Sr No.	Deductions or Exemptions not allowed	Amount of deduction/ Exemptions
1	House rent allowance u/s 13A	Lower of 40%/ 50% Of (Basic+ DA+ Turnover commission) or Actual amount received or Rent paid Minus 10% of (Basic+ DA+ Turnover commission)
2	Leave travel allowance	Exemption is available only on the actual travel costs i.e., the air, rail or bus fare incurred by the employee
3	Food coupons	Upto Rs. 50 Per meal is exempt the excess is taxable under salary
4	Children Education allowance	Max Rs. 100 per month per child upto Maximum 2 child
5	Helper allowance	Fully Exempt
6	Special compensatory allowance	Fully Exempt
7	Border area allowance	Fully Exempt
8	Tribal areas allowance	Rs. 200 per month
9	Transport allowance for employees of transport	Lower of amount received X 70% or Rs. 10000 pm
10	Travelling allowance	Fully Exempt
11	Island duty allowance	Fully Exempt
12	Uniform allowance	Fully Exempt
13	Research allowance	Fully Exempt
14	Leave encashment benefit	Lower of Rs. 3,00,000 per annum or Annual leave encashment amount or Average salary of last 10 months or Salary per day X untilised leave (Considering maximum 30 days allowed leave per year)
15	Reimbursement of medical expense u/s 17(2)	Amount of expense incurred on treatment in government hospital or Employer’s hospital or Government recognised hospital
16	Any allowance granted to an employee to meet the hostel expenditure on his child	Max Rs. 300 per month per child up to Maximum 2 child
17	Compensatory Field Area Allowance	Fully Exempt
18	Compensatory Modified Field Area Allowance	Fully Exempt
19	Underground Allowance for mine workers	Max Rs. 800 per month
20	Daily allowance by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof u/s 10(17)	Fully Exempt
21	Entertainment allowance u/s 16	For government employees only: Lower of 20% of Basic salary or Actual amount received or Maximum Rs. 5000
22	Profession tax u/s 16	Maximum Rs. 2,500
23	Interest on Housing loan u/s 24(2) with respect to self-occupied property	Maximum Rs. 2,00,000
24	Standard deduction u/s 16	Maximum Rs. 50,000
25	Deduction with respect to Specified investment under 80C	Maximum Rs. 1,50,000
26	Deduction with respect to Contribution to NPS u/s 80CCD(1B)	Maximum Rs. 50,000
27	Deduction with respect to Mediclaim premium or medical expenses u/s 80D	Maximum Rs. 50,000 / Senior Citizen then Rs 75,000
28	Deduction with respect to medical treatment of handicapped relative u/s 80DD	Maximum deduction Normal disability =75,000 and for Severe disability = 1,25,000
29	Deduction with respect to treatment of specified disease u/s 80DDB	Maximum deduction Lower of Actual expenses or Maximum Rs. 40000 for other and 100000 for senior citizen
30	Deduction with respect to Interest on Education Loan u/s 80E	Interest amount for 8 consecutive years
31	Deduction with respect to donation to trust or political parties under section 80G	Amount of donation
32	Deduction with respect to donation to trust or political parties under section 80GGC	100% of Donation made
33	Deduction with respect to interest on savings account u/s 80TTA	Lower of Amount of saving interest or Rs. 10,000
34	Deduction with respect to interest on Deposits to senior citizens u/s 80TTB	Lower of Amount of interest or Rs. 50,000
35	Additional Deduction for Interest on Home Loan u/s 80EE	Maximum Rs. 50,000
36	Additional Deduction for Interest on Home Loan u/s 80EEA	Maximum Rs. 1,50,000
37	Deduction for Interest on electric vehicle loan u/s 80EEB	Maximum Rs. 1,50,000
38	Deduction for handicapped assessee under section 80U	Normal= 75,000 or Severe= Rs. 1,25,000
39	Deduction for Royalty from books under section 80QQB	Lower of Eligible royalty or Rs. 3,00,000
40	Deduction for Royalty from patent under section 80RRB	Lower of Eligible royalty or Rs. 3,00,000
41	Deduction for donation to scientific research Organisation under section 80GGA	100% of Amount of donation
42	Deduction under section 80GG for rent paid other than HRA	Lower of Rs. 5000 per month or 25% of Adjustment gross total income or rent paid- 10% of Adjustment gross total income
43	Deduction u/s 80JJA with respect to Income from collecting and processing biodegradable waste	100% of profit of business
44	Deduction under section 57 with respect to family pension	Lower of Rs. 15,000 or 1/3 rd of the amount of pension received
45	Deduction u/s 10(32) In Case of Income from Minor Child	Maximum deduction of Rs. 1500 per child
46	Deduction u/s 10AA with respect to income of SEZ unit	Maximum deduction is 100% of profits for 1st 5 years of business and 50% of profits for the next 5 years of business
47	Deduction of deprecation as per section 32	Amount of depreciation as per rate schedule of income tax act
48	Deduction u/s 32AD for investment in new Plant and Machinery in notified backward area	15% of the Actual cost of new plant and machinery installed
49	Deduction with respect to specified business under section 35AD	100% of the profit from specified business
50	Deduction with respect to expenditure on agricultural extension project u/s 35CCC	150% of the expenditure allowed on agricultural extension
51	Deduction with respect to tea, coffee, rubber business u/s 33AB	Lower of Actual amount deposited in NABARD a/c or 40% of PGBP before this deduction
52	Deduction with respect to petroleum and natural gas business u/s 33ABA	Lower of Actual amount deposited in site restoration account or 20% of PGBP (before the deduction)
53	Deduction with respect to contribution to outsiders to IIT national laboratory for scientific research under section 35(2AA)	150% of the contribution paid
54	Deduction with respect to expenditure on scientific research u/s 35	100% deduction for Revenue and capital expenditure incurred for scientific research

What deductions can one claim if they switch to the new tax regime?

Assesses can claim the following deductions if they opt for the new tax regime:

Sr no	Deductions or Exemptions not allowed	Amount of deduction/ Exemptions
1	Exemptions with respect to gratuity under section 10(10)	Lower of Last drawn salary X no of years employed X 15/26 or Rs. 20 Lakhs or Actual gratuity received
2	Exemptions with respect to commuted (lumpsum) pension u/s 10(10A)	For government employees= Fully exempt and other employees= if gratuity is received by the employee, then 1/3rd  of the commuted pension is exempt else 50% of the commuted pension is exempt
3	Exemptions on Maturity proceeds of Life insurance u/s 10(10D)	Fully exempt
4	Deduction under section 80CCD (2) with respect to Contribution by employer to NPS	Lower of employer contribution or Maximum 10% of the Salary
5	Interest on Housing loan u/s 24(2) with respect to let out property	Whole amount of interest on housing loan
6	Deduction under section 80JJAA with respect to additional employees’ cost	Maximum 30% of additional employee cost incurred during the year