Old Tax Brackets Vs New – Comparison
The new tax regime, announced by finance minister Smt Nirmala Sitharaman, under Budget 2020 introduced an increase in tax slabs along with reduced tax rates. However, the taxpayer soon realized that there was a catch. The deductions and exemptions available in the old tax regime were removed from the new one. Most taxpayers also felt a little confused with the option that they have been given to choose between the old tax regime or the new one. This freedom has left them a complex choice and they need to do old tax brackets Vs new tax brackets comparisons on their own.
So if you too are figuring out a way through the “old tax brackets Vs new”, read on to get some clarity about the same.
Old Tax Brackets Vs New:
As per the Indian tax system, taxability depends on factors such as the residential status of the individual, according to his presence in India during a financial year and the 10 preceding financial years
There can not be a one-size-fits-all, and as the tax is dependent on the earnings that you generate in a financial year, you first need to understand your own income. Whether you generate an income through your profession or your business or your freelance work or through any other source, you are required to pay a part of it to the government.
Let us take a look at the old and new tax rates and slabs.
| New Tax Rates | Tax Slab (INR) | Old Tax Rates |
| Not Applicale | Upto 2,50,000 | Not Applicale |
| 5% | 2,50,000 – 5,00,000 | 5% |
| 10% | 5,00,000 – 7,50,000 | 20% |
| 15% | 7,50,000 – 10,00,000 | 20% |
| 20% | 10,00,000 – 12,50,000 | 30% |
| 25% | 12,50,000 – 15,00,000 | 30% |
New Tax Bracket
In the new tax regime, there has been an increase in the number of tax slabs and there has been a decrease in the tax slab range of INR 15 lakhs and above. However, the deductions and exemptions would no longer be available in the new tax bracket.
Old Tax Bracket
The old tax bracket though has high tax rates, a number of options are available for the taxpayer. As per the Income Tax Act, for an Indian taxpayer, there are over 70 deductions and exemptions, that he can claim. These exemptions and deductions can help in lowering the taxable income, a few of them are:
- House rent allowance
- Mobile and internet reimbursement
- Uniform allowance
- Saving account interest
- ELSS (Equity Linked Saving Scheme)
- Employee provident fund
- Life insurance premium
- Public provident fund
- Principal and interest component of home loan
- Children tuition fees
The maximum deduction you can claim is INR 1.5 lakhs under Section 80C of the Income Tax Act, 1961.
Old Tax Brackets Vs New Tax Bracket
There really cannot be a single answer to the question, which tax bracket is better. The complexity of the system of taxes in India. In the first look, you may feel that the new bracket looks more taxpayer-friendly, however, keep in mind the devil lies in the details.
If you are trying to figure out if you choose the old tax bracket or the new one, the task may seem a bit complicated, however, doing the same in a systematic way would be helpful, let us see how:
Step 1: You first need to commute all the exemptions that you are going to avail of. You would be eligible for HRA if you are living in rented accommodation. You can also make use of tax-free components such as LTA, phone bills.
These components, however, will not be eligible for tax deductions under the new regime and would be taxable.
Step 2: Being a salaried employee, you can automatically get standard deductions of INR 50,000 and for the contribution that you make towards the EPF, Employee Provident Fund. you again need to keep in mind that such deductions would not be applicable in the new tax regime.
Step 3: These exemptions can then be subtracted from your salary. You would then be able to see your taxable income. You can also compare if you have to let go of them.
Calculation of Income Tax: Old Tax Brackets Vs New
Let us now see this example to calculate income tax on the salary income. Manish Verma is a college professor. He is 41 years old. His basic salary is Rs 15 lakhs a year. He pays a monthly house rent of Rs 30,000, i.e. Rs 3.6 lakhs per annum
We already know that income from salary includes basic salary, HRA, or house rent allowance, along with other allowances, some of which are eligible for an exemption of Income Tax. Here is Manish’s annual salary break-up:
- A basic salary income of Rs 15 lakhs per annum
- HRA of Rs 4 lakhs per annum
- The LTA is Rs 20K
- With a Special Allowance or Rs 2.85 lakhs
- Taxpayer is categorised as an individual resident Indian
| Nature | Amount
(in Rs. lakhs) |
Deductions
(in Rs. lakhs) |
Taxable Income
(Old regime) WITH deductions |
Taxable Income
(New regime)- NO Deductions |
| Basic | 15 | Not applicable | 15 | 15 |
| HRA | 4 | 3.6 | 0.4 | 4 |
| Special Allowances | 2.85 | Not applicable | 2.85 | 2.85 |
| LTA | 0.2 | 0.2 | 0 | 0.2 |
| Standard Deduction (for salaried) | – | 0.5 | -0.5 | Not applicable |
| Total Income | Rs 22.05 lakhs | Rs 4.3 lakhs | Rs 17.75 lakhs | Rs 22.05 lakhs |
Tax calculation under the Old Tax Regime:
| Nature | Amount in INR | Total |
| Salary | 17,75,000 | |
| Any other source of income | 45,000 | |
| Gross total income | 18,20,000 | |
| Deductions :
U/S 80C
U/S 80D
U/S 80TTA |
||
| 1,50,000 | ||
| 20,000 | ||
| 10,000 | 1,80,000 | |
| Taxable Income | 1,64,000 | |
| Tax portion | 3,04,500 | |
| Health and education cess | 12180 | |
| Total tax liability (including cess) | 3,16,680 |
Tax calculation under the New Tax Regime:
| Nature | Amount in INR | Total |
| Salary | 22,05,000 | |
| Any other source of income | 45,000 | |
| Taxable Income | 20,50,000 | |
| Tax portion | 4,12,500 | |
| Health and education cess | 16,500 | |
| Total tax liability (including cess) | 4,29,000 |
The Bottom Line
As a taxpayer, you may find it challenging to understand and follow the changes brought in by the tax regime. Choosing the appropriate one between the two can be a little daunting, but once you comprehend the differences and the components, the pros and cons you would be able to make your way. Using the help of various online tools, you can put your income in both the tax regime and calculate the respective taxes. Once you know the exact taxable amount, you would be able to derive a suitable decision.
However, if you still feel that you are unable to compare the old tax brackets Vs new ones, you can always take the help of a professional.
