Every year, based on your earnings, you pay taxes to the government of the country. In India, the income tax system is quite clear, as taxpayers pay taxes according to the tax slabs. Depending upon your earnings and tax payable, there are different types of ITRs (Income Tax Returns). A taxpayer simply must check in which slab does their income comes in and pay taxes accordingly. It is an effective and developed system that is further modified after every budget.
Currently, there are two tax regimes in India: the existing tax regime and the new tax regime. A taxpayer can choose anyone that is more convenient for them. There is no compulsion to choose the new tax regime or the previous one. Based on the tax implications of both regimes, select the one that is most beneficial to you. Here is the table mentioned below that reflects the existing income tax slab and the new income tax slab.
| Income Tax Slab
|
Tax rates of the existing regime for FY 20-21 | New income tax regime slab rates for FY 20-21 | ||
| Resident individuals and HUF of less than 60 years of age and NRIs | Resident individuals and HUF between 60 to 80 years of age | Resident individuals and HUF who are 80 years of age and above | Applicable for all individuals and HUF | |
| Rs.0 – Rs.2,50,000 | NIL | NIL | NIL | NIL |
| Rs.2,50,000 – Rs.3,00,000 | 5% (tax rebate available u/s 87)
|
NIL | NIL | 5% (tax rebate available u/s 87) |
| Rs.3,00,000 – Rs.5,00,000 | 5% (tax rebate available u/s 87)
|
NIL | ||
| Rs.5,00,000 – Rs.7,50,000 | 20%
|
20%
|
20%
|
10% |
| Rs.7,50,000 – Rs.10,00,000 | 20%
|
20%
|
20%
|
15% |
| Rs.10,00,000 – Rs.12,50,000 | 30%
|
30%
|
30%
|
20%
|
| Rs.12,50,000 – Rs.15,00,000 | 30%
|
30%
|
30%
|
25% |
| Any amount above Rs.15,00,000 | 30%
|
30%
|
30%
|
30%
|
You can see above that there are no significant changes that are made in tax slabs from the old to the new regime. How can you decide between the old and new income tax slabs? To decide which regime is beneficial to you as a taxpayer, you need to carefully analyze both regimes and compare them.
The new tax regime is quite simplified when compared to the old tax regime. Firstly, the new tax regime has more slabs with lower tax rates. However, the new tax regime does not allow the exemptions and deductions that were available in the existing tax regime. If you want to avail yourself of the direct advantage of low tax rates, the new tax regime is a perfect choice. Whereas, if you are seeking deductions and exemptions, the existing tax regime would be more beneficial to you.
Citizens pay taxes based on which tax slab their income falls under. These tax slabs have been created keeping the average income of the citizens in mind. The more you earn, the more liable you are to pay income tax. Also, if you have investments and insurances that provide tax deductions, the existing regime is a better choice as you can avail of the deductions and exemptions. Use an income tax calculator to know the tax payable after deducting the exemptions from your taxable income. There are about 70 types of deductions and exemptions that you can claim under the old regime. Several individuals invest in different financial instruments to save taxes particularly. While the new regime is a more simplified version eliminating deductions while lowering the tax rates.
Tax factors like your income, the composition of your income, source of income, savings, and investments should be taken into consideration for choosing your tax regimes. The income tax department provides an easy-to-use income tax calculator that will reflect which regime is more beneficial for an individual based on their outflow of tax. Both regimes have their own benefits and drawbacks. People who want to avoid locking their funds simply to get tax deductions are choosing the new tax regime. If you are a salaried individual, you can choose every year between any of the two regimes. Whereas, if your income is from a business or profession, you get to return to the old tax regime only once after choosing a new tax regime.