Individuals and HUF taxpayers are eligible to choose a new tax regime from FY 2020-21.
From FY 2020-21, you can choose to pay income tax under an optional new tax regime. The new tax regime is available for individuals and HUFs with lower tax rates and zero deductions/exemptions. We will discuss the features of the new tax regime and how you can benefit from it.
New slab rates | Existing slab rates | ||
---|---|---|---|
Income from Rs 2.5 lakh to Rs 5 lakh | 5% | Income from Rs 2.5 lakh to Rs 5 lakh | 5% |
Income from Rs 5 lakh to Rs 7.5 lakh | 10% | Income from Rs 5 lakh to Rs 10 lakh | 20% |
Income from Rs 7.5 lakh to Rs 10 lakh | 15% | Income above Rs 10 lakh | 30% |
Income from Rs 10 lakh to Rs 12.5 lakh | 20% | ||
Income from Rs 12.5 lakh to Rs 15 lakh | 25% | ||
Income above Rs 15 lakh | 30% |
Annual income | Tax under the existing regime (Rs) | Tax under the new regime (Rs) | Tax savings under the new regime (Rs) |
Up to Rs 7,50,000 | 65,000 | 39,000 | 26,000 |
Up to Rs 10,00,000 | 117,000 | 78,000 | 39,000 |
Up to Rs 12,50,000 | 195,000 | 130,000 | 65,000 |
Up to Rs 15,00,000 | 273,000 | 195,000 | 78,000 |
The following are the deductions and exemptions you cannot claim under the new tax system:
You can claim tax exemption for:
A salaried taxpayer can choose the new tax regime at the beginning of FY 2020-21 and intimate their employer. Employees cannot change their choice anytime during the financial year; however, the change can be done when filing the income tax return in July 2021.
The due date for tax filing for the FY 2020-21 (AY 2021-22) is 31 December 2021 (extended from 31 July 2021).
In case an employee does not choose the new tax regime at the beginning of the financial year, the employer will deduct tax (TDS) under the existing tax regime. Hence, a salaried taxpayer can opt-in and opt out every year. That means you can choose the new tax regime in one year and choose the regular tax regime in another year.
A non-salaried taxpayer has to choose the new regime when filing the tax return, and they need not declare or intimate their choice to anyone at any time during the year. However, a non-salaried taxpayer cannot opt in and opt out of the new tax regime every year. Once a non-salaried opts out of the new tax regime, they cannot opt-in again for the new tax regime in the future.
Income (Rs) | Old regime (Rs) | New regime (Rs) | Tax Difference (Rs) | |
Salary | 1,250,000 | 12,50,000 | 12,50,000 | |
Less: Standard deduction | 50,000 | 50,000 | – | |
Less: Professional tax | 2,400 | 2400 | – | |
Gross total income | 1,197,600 | 11,97,600 | 12,50,000 | |
Less: Deduction u/s 80C | 150,000 | 1,50,000 | – | |
Total income | 1,047,600 | 1,047,600 | ||
Income tax | 126,780 | 125,000 | ||
Add: Education cess @ 4% | 5,071 | 5,000 | ||
Total tax | 131,851 | 130,000 | 1,851 |
Income (Rs) | Old regime (Rs) | New regime (Rs) | Tax Difference (Rs) | |
Salary | 1,000,000 | 1,000,000 | 1,000,000 | |
Less: Standard deduction | 50,000 | 50,000 | Nil | |
Less: Professional tax | 2,400 | 2,400 | Nil | |
Gross total income | 947,600 | 947,600 | 1,000,000 | |
Less: Deduction u/s 80C | 150,000 | 150,000 | Nil | |
Total income | 797,600 | 797,600 | 1,000,000 | |
Income tax | 72,020 | 75,000 | ||
Add: Education cess @ 4% | 2,881 | 3,000 | ||
Total tax | 74,901 | 78,000 | -3,099 |
In Example 2, for an income of Rs 10 lakh, the existing tax regime is beneficial.
Suppose an individual claims lower deductions for tax savings, towards health insurance, investment in NPS and so on. In that case, the new regime will be more beneficial against individuals who utilise the tax-saving assets.
Also, individuals with an income bracket between Rs.5-10 Lakh with a lower claim of deductions will benefit from the new regime. In contrast, individuals under a higher income tax bracket above Rs.15 lakh of income per annum can help more from the existing government by making tax-saving investments.
It is important to note that each taxpayer should calculate income tax, consider their tax-saving investments and then choose the regime.
In the case of a self-occupied property, you cannot claim a deduction on interest for a housing loan under the new tax regime. The removal of Rs 2.00 lakh allowed in the existing system is not available in the new tax regime. Also, you cannot set off the loss of Rs 2 lakh from house property from your salary income.
If you have let out house property, you can claim a deduction for interest paid on the housing loan. Note that the new tax regime restricts the conclusion to the taxable rent received from the property against the old government. In the new rule, you cannot offset the loss arising from the house property due to excess interest paid over the rental income. Also, you cannot carry forward the loss from house property to future years for set off.
Deductions and exemptions not allowed for business income:
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.