New income tax regime vs old: Find out which works better for you?2 min read . Updated: 08 Aug 2020, 04:09 PM IST
Here is a do-it-yourself exercise to compute and decide which income tax regime lets you pay lower taxes
Are you still confused between old income tax regime and new income tax regime? Well, here is a do it yourself exercise to compute and decide which income tax regime lets you pay lower taxes. Before moving further remember, if you are a salaried individual and you had opted for the new tax regime while declaring your investments at the beginning of the year, you will have to forgo certain exemptions like tax exemption on Leave Travel Allowance or LTA if you switch to new income tax regime now.
In order to compare your tax payout under new and old income tax regimes, we have created a sheet. You can just fill in your details whichever are applicable to you and compute the difference in tax outgo. This will help you select between the two tax regimes.
Income Tax Calculation: Old tax regime vs New tax regime
Here's a brief explanation to the deductions mentioned in the above illustration.
- Standard deduction of ₹50,000 is automatically provided to salaried individual under the old tax regime.
- Deduction under Section 80C can be claimed for investment in ELSS mutual fund, EPF, PPF, life insurance premiums, Senior Citizen Savings Scheme, National Savings Certificate, 5-yr tax saving FD, Sukanya Samriddhi Account, expenses on school tuition fee, principal repayment of home loan etc. The maximum deduction allowed is ₹1.50 lakh.
- You can claim an additional deduction of up to ₹50,000 for investing in National Pension System or NPS under Section 80CCD(1B).
- You can claim deduction under Section 80D for paying health insurance premiums for yourself or members of your family for upto ₹25,000 in a financial year. In case of senior citizens, the limit is ₹50,000.
These are the major deductions claimed by an individual. If you claim any additional deduction, you can write in on your sheet and deduct under the old tax regime.
The new tax regime has let go most of the deductions but it still allows a few exemptions. Read: 10 incomes that are exempted under the new income tax regime
Once you reach your net taxable income, you need to compute taxes under both the income tax regimes to find the better tax regime for you. Here are the tax slab rates and the calculation of taxes on the net taxable income arrived in the above mentioned illustration under both the regimes:
Based on the numbers assumed by us, old tax regime works better and results in lower tax outgo. Calculate your tax outgo using this simple exercise to find out which one works better for you.