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The 2020 Union Budget brought in a consequential change in the Indian taxation system – the new tax regime. The Government of India has provided taxpayers with the option of opting for the tax regime of their choosing. Also from AY 24-25 new regime will be default option to tax payer and they have to choose for the old tax regime. The old tax regime had four tax slabs, each catering to a different range of an individual’s income. However, this change in regime means more than just an increase in the number of tax slabs. Read on to know about the new tax regime and the ways in which it differs from the old tax regime.
What is the new tax regime?
We are all aware that Finance Minister Ms. Nirmala Sitharaman announced the new tax regime in the 2020 budget; thereby doing away with all the deductions and exemptions that a taxpayer could avail under the old tax regime and introducing more tax slabs. To understand the consequences of this regime for every taxpayer, we must first understand the definition of the term and its features. The new tax regime, introduced in the Budget 2020, provides taxpayers across the country with the option of paying income tax at lower rates under Section 115BAC of the Income Tax Act.
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How do the tax slabs of the new tax regime differ from those of the old tax regime?
The finance minister announces the income tax slabs for the upcoming financial year in every Union Budget. Before the Budget 2020, the tax slabs of the old tax regime looked like this:
| Income Tax Slab | Income Tax Rate |
| Up to ₹ 2,50,000 | NIL |
| ₹ 2,50,001 - ₹ 5,00,000 | 5% above ₹ 2,50,000 |
| ₹ 5,00,001 - ₹ 10,00,000 | ₹ 12,500 + 20% above ₹ 5,00,000 |
| Above ₹ 10,00,000 | ₹ 1,12,500 + 30% above ₹ 10,00,000 |
Moving on, the new tax regime adds three more tax slabs to these tax slabs, taking the total number of tax slabs in the new tax regime to 7. Here are the tax slabs for AY 2022-2023:
| Income Tax Slab | Income Tax Rate |
| Up to ₹ 3,00,000 | NIL |
| ₹ 3,00,001 - ₹ 6,00,000 | 5% above ₹ 3,00,000 |
| ₹ 6,00,001 - ₹ 9,00,000 | ₹ 15,000 + 10% above ₹ 6,00,000 |
| ₹ 9,00,001 - ₹ 12,00,000 | ₹ 45,000 + 15% above ₹ 9,00,000 |
| ₹ 12,00,001 - ₹ 15,00,000 | ₹ 90,000 + 20% above ₹ 12,00,000 |
| Above ₹ 15,00,000 | ₹ 1,50,000 + 30% above ₹ 15,00,000 |
The table that you just saw, however, displays the new tax regime tax slabs for individuals (resident or non-resident) who are less than 60 years of age. Here is a comparison of the new tax regime tax slabs for individuals (resident or non-resident) who are more than 60 years of age, but less than 80 years of age.
| Old Tax Regime | New Tax Regime | ||
| Income Tax Slab | Income Tax Rate | Income Tax Slab | Income Tax Rate |
| Up to ₹ 3,00,000 | NIL | Up to ₹ 3,00,000 | NIL |
| ₹ 3,00,001 - ₹ 5,00,000 | 5% above ₹ 3,00,000 |
₹ 3,00,001 - ₹ 6,00,000 | 5% above ₹ 3,00,000 |
| ₹ 5,00,001 - ₹ 10,00,000 | ₹ 10,000 + 20% above ₹ 5,00,000 | ₹ 6,00,001 - ₹ 9,00,000 | ₹ 15,000 + 10% above ₹ 6,00,000 |
| Above ₹ 10,00,000 | ₹ 1,10,000 + 30% above ₹ 10,00,000 | ₹ 9,00,001 - ₹ 12,00,000 | ₹ 45,000 + 15% above ₹ 9,00,000 |
| ₹ 12,00,001 - ₹ 15,00,000 | ₹ 90,000 + 20% above ₹ 12,00,000 | ||
| Above ₹ 15,00,000 | ₹ 1,50,000 + 30% above ₹ 15,00,000 | ||
The new tax regime is applicable on income earned from 1st April 2020 (FY 2020-2021) which relates to AY 2021-2022.
What are the differences between the old and new tax regimes?
As mentioned earlier, the new tax regime’s implementations have farther-reaching effects and implications. Here are the deductions or exemptions for which you shall not be eligible under the new tax regime:
- Professional tax and entertainment allowance on salaries
- Leave Travel Allowance (LTA)
- House Rent Allowance (HRA)
- Minor child income allowance
- Helper allowance
- Children education allowance
- Other special allowances (Section 10(14))
- Interest on housing loan on the self-occupied property or vacant property
- Business deductions and business expenditures on specified businesses under the Income Tax Act.
- Tax-saving investments under Chapter VI-A deduction (80C, 80D, 80E, and so on)
- Deduction from family pension income
- Set off of loss or depreciation carried forward from earlier years in relation to the specified businesses.
The following allowances can be claimed under the new tax regime:
- Transport allowance for especially abled people.
- Conveyance allowance to meet the conveyance expenditure incurred as part of the employment.
- Deduction of Notified Pension Scheme under section 80CCD (2)
- Deduction for employment of new employees under section 80JJAA
- Depreciation under section 32 of the Income-Tax act except for additional depreciation.
- Any allowance granted to meet the cost of travel on tour or on transfer.
- Any allowance, whether granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.
- Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit.
- Transport allowance granted to an employee who is blind or deaf and dumb or orthopedically handicapped with a disability of lower extremities, to meet their expenditure for the purpose of commuting the place of their residence and the place of their duty.
Your choice of tax regime would depend on various aspects related to your personal finances. Some of the considerations that you must make are – whether you have a housing loan, whether you contribute towards EPF (Employee Provident Fund), whether you receive HRA (House Rent Allowance) benefits, and so on.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.
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