Old vs New Tax Regime: Which tax regime you should choose on salaries above Rs 10 lakh, Rs 15 lakh, and Rs 20 lakh? Get expert calculations
Income Tax Season: The last date to file the income tax return (ITR) is July 31, 2024. There are a number of taxpayers in salary brackets of Rs 10 lakh and above who are in confusion whether to choose the old or the new tax regime. Through expert calculations, know which of the options you may chose to get maximum tax benefits.
ITR Return, old vs new income tax regime: The Income Tax Filing (ITR) season is on. The last date for filing ITR is July 31. When we select an income tax regime, we often find ourselves in a dilemma about whether we should select the old tax regime or the new. At times, it's as tough a call as to take a heads or tails call in a coin toss. Specially, taxpayers in salary brackets of Rs 10 lakh and above are at a crossroads of taking the right call. The general perception is that the old tax regime is beneficial for those claiming exemptions under Section 80C of the Income Tax Act, 1961. But is it always the case that you need to pay more tax if you choose the new tax regime? Should the old tax regime be a default setting for taxpayers claiming deductions under various income tax sections? Which tax regime can help you save the most tax if your annual salary is Rs 10 lakh and above?
Chintan Ghelani, Associate Partner, N.A. Shah Associates, eases your problem with his calculations, where he is picking taxpayers earning Rs 10 lakh, Rs 15 lakh, and Rs 15 lakh annually.
He also tells which of the regimes can be beneficial if tax exemption exceeds a certain limit.
Exemptions/Deduction available in old tax regime but not in the new tax regime are assumed as under and a slight variation thereof is considered for explaining the issue:
|
Particulars |
Amount (Rs.) |
|
Eligible deduction under section 80C - PPF, premium paid for life insurance policy, 5 years FD, ELSS Mutual Funds, school fees etc |
1,50,000 |
|
Deduction for health insurance premium paid u/s 80D |
25,000 |
|
Interest on home loan paid for self-occupied property under section 24(b) |
2,00,000 |
|
Interest earned on savings bank account under section 80TTA |
10,000 |
Chart Courtesy: NA Shah Associates
Tax payable under the old regime and new regime assuming exemptions/deductions of Rs. 3,70,000
Here is a tabulated comparison of the beneficial tax regime for a taxpayer earning a salary of Rs 15 lakh, Rs. 20 lakh, and Rs. 25 lakh, assuming the two scenarios: first, wherein a taxpayer has an exemption/deduction below Rs 3,75,000 (let's say Rs 3,50,000), and second, wherein a taxpayer has exemption/deduction of Rs 3,75,000 and above.
|
Regime |
Salary (in Rs.) (A) |
Deductions/Exemptions (in Rs.) (B) |
Net Taxable Income (in Rs.) (A-B) (*) |
Total Tax Payable (in Rs.) |
Beneficial regime |
|
Old regime |
15,00,000 |
3,70,000 |
11,30,000 |
1,51,500 |
New |
|
New regime |
15,00,000 |
0 |
15,00,000 |
1,50,000 |
|
|
Old regime |
20,00,000 |
3,70,000 |
16,30,000 |
3,01,500 |
New |
|
New regime |
20,00,000 |
0 |
20,00,000 |
3,00,000 |
|
|
Old regime |
25,00,000 |
3,70,000 |
21,30,000 |
4,51,500 |
New |
|
New regime |
25,00,000 |
0 |
25,00,000 |
4,50,000 |
Chart Courtesy: NA Shah Associates
(*) For simplicity, the standard deduction of Rs 50,000 available in both regimes is ignored
Tax payable under the old regime and the new regime, assuming exemptions/deductions of Rs 3,80,000/-
|
Regime |
Salary (in Rs.) (A) |
Deductions/Exemptions (in Rs.) (B) |
Net Taxable Income (in Rs.) (A-B) (*) |
Total Tax Payable (in Rs.) |
Beneficial regime |
|
Old regime |
15,00,000 |
3,80,000 |
11,20,000 |
1,48,500 |
Old |
|
New regime |
15,00,000 |
0 |
15,00,000 |
1,50,000 |
|
|
Old regime |
20,00,000 |
3,80,000 |
16,20,000 |
2,98,500 |
Old |
|
New regime |
20,00,000 |
0 |
20,00,000 |
3,00,000 |
|
|
Old regime |
25,00,000 |
3,80,000 |
21,20,000 |
4,48,500 |
Old |
|
New regime |
25,00,000 |
0 |
25,00,000 |
4,50,000 |
Chart Courtesy: NA Shah Associates
(*) For simplicity, the standard deduction of Rs. 50,000 available in both regimes is ignored
From the above table, it will be observed that for a tax payer having a salary of Rs 15 lakhs and above and who can only claim deductions/exemptions aggregating to Rs 3.70 lakhs or less, the new regime would be beneficial.
If the claim for deductions/exemptions increases to Rs 3.80 lakh or more, then the old regime is beneficial.
These comparative charts and examples suggest that, as a thumb rule, a tax payer having a salary of Rs 15 lakhs or above and eligible to claim deductions/exemptions less than Rs 3.75 lakhs should opt for the new tax regime, and if the same is more than Rs. 3.75 lakhs, they should opt for the old tax regime.
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