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This article is more than 1 year old.

Old vs New income tax regime: Which one should you opt for

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The Central Board of Direct Taxes (CBDT) issued a circular on April 13, directing all employers to obtain a declaration from employees if they wish to opt for the new tax regime.

Old vs New income tax regime: Which one should you opt for
Employers have started asking their employees to give their choice of income tax regime so that they can calculate their tax liability accordingly. The Central Board of Direct Taxes (CBDT) issued a circular on April 13, directing all employers to obtain a declaration from their employees if they wish to opt for the new tax regime.
The Union Budget earlier this year had offered an individual the choice of paying tax under the new tax structure with lower rates but without deductions or continue to pay tax under the existing tax laws and claiming the applicable exemptions.
What are the new income tax slabs
Under the new tax regime, 7 income slabs are available.
Annual income up to Rs 2.5 lakh is exempt from tax. Those individuals earning between Rs 2.5 lakh and Rs 5 lakh have to pay 5 percent tax. Income between Rs 5 and 7.5 lakh is taxed at 10 percent, while those between Rs 7.5 and 10 lakh at 15 percent.
Those earning between Rs 10 and 12.5 lakh have to pay tax at the rate of 20 percent, while those between Rs 12.5 and Rs 15 lakh have to pay at the rate of 25 percent. Income above Rs 15 lakh is taxed at 30 percent.
How to choose suitable one from the two regimes
With the optional new regime, taxpayers should assess the situations and actual benefits in the old and the proposed tax structure before opting for the one that works better for them.
"An individual who is currently availing more deductions and exemptions under the Income Tax Act may choose to avail them and continue to pay tax in the old regime," explains Archit Gupta, founder and CEO, ClearTax.
Here's a difference in tax under old and new regime on same levels of income for individuals below 60 years of age:
Here, we have tried to find out the tax outgo for certain incomes. This calculation provided by Amit Maheshwari, partner, Ashok Maheshwary Associates, is based on assumption that the individual is claiming only Rs 1.5 lakh deduction, which is the standard exemption provided under Section 80C of the Income Tax Act.
Other deductions and exemptions associated with an income tax have not been taken into account. Health and education cess at the rate of 4 percent have been levied on the income tax plus surcharge wherever applicable.
When the gross income is Rs 7.5 lakh
A person earning Rs 7.5 lakh (assuming the individual is availing only deduction under Section 80C) will pay a tax of Rs 33,800 in old tax regimre. However, if the person enters the new regime, he will have to pay Rs 39,000 as tax, according to Maheshwari.
On the other hand, if the gross income is Rs 7.5 lakh (assuming the individual is not availing deductions), he will end up paying more tax in the old regime.
When the gross income is Rs 10 lakh
A person earning Rs 10 lakh (assuming the individual is availing only deduction under Section 80C) will pay a tax of Rs 85,800, as per the old regime. However, if the person enters the new regime, he will have to pay only Rs 78,000 as tax, according to Maheshwari.
When the gross income is Rs 12.5 lakh
A person earning Rs 12.5 lakh (assuming the individual is availing only deduction under Section 80C) will pay a tax of Rs 1,48,200, as per the old regime. However, if the person enters the new regime, he will have to pay Rs 1,30,000 as tax.
When the gross income is Rs 15 lakh
A person earning Rs 15 lakh in a year and not availing any deductions etc. will pay only Rs, 1,95,000 as compared to Rs, 2,73,000 in the old regime. Thus, his tax burden shall be reduced by 78,000 in the new regime, according to a government's release.
However, if an individual earns Rs 15 lakh a year and is availing deductions, he would be paying Rs 1,52,880 in the old regime. His tax burden may increase if he opts for the new regime.
When the gross income is Rs 20 lakh
A person earning Rs 20 lakh (assuming the individual is availing only deduction under Section 80C) will pay a tax of Rs 3,82,200, as per the old regime. However, if the person enters the new regime, he will have to pay Rs 3,51,000 as tax, according to Maheshwari.