Tax compared for various salaries, exemptions, ages under new and old regime
New Delhi: The salaried middle-class was expecting a lot from Budget 2020 in terms of tax rate and 80C deduction enhancements. While FM Nirmala Sitharaman did announce some new tax slabs and other tax changes, it was far from what people expected. In her Budget speech, the FM announced a new income tax regime in which taxpayers get charged lower income tax rates.
However, there is a catch. Taxpayers have to forgo several tax deductions and exemptions in order to switch to the new tax regime. This includes the most popular exemptions, deductions such as Section 80C deduction limit of Rs 1.5 lakh. Note that other popular tax deduction benefits such as health insurance premium (Section 80D), home loan interest paid (Section 24), house rent allowance (Section 10) and National Pension Scheme (Section 80CCD-1B) etc. have to be forgone as well.
While the new tax slabs are fairly easy to understand. People are having trouble figuring out if they will have to pay more tax in the new regime or not.
Here’s a comparison of how much income tax you will pay for various salaries, exemptions, ages:
1. How much tax you will pay if you claim only Rs 1.5 lakh deduction, which is the standard exemption under Section 80C:
2. How much tax you will pay at various salaries when you avail exemption of Rs 3 lakh:
3. How much tax senior citizens (above 60 years of age) will pay at various salaries when availing exemption of Rs 3 lakh
4. How much tax very senior citizens (above 80 years of age) will pay at various salaries when availing exemption of Rs 3 lakh
There is no single answer as to whether you should ‘switch or stick’ since it doesn’t just depend on your income or salary structure. You need to look at your investment habits, your age, life-stage, financial goals, responsibilities, expenses etc. to make a decision. In order to make a decision, you will have to plot your actual income and deduction figures to decide whether to switch to the new regime.
Tax deduction benefits actually help lower taxes more than just lower tax rates. The new tax regime might help you by reducing your paperwork but the actual benefits don’t make it worth your while, especially if you are claiming multiple deductions.
As the calculations reveal, if you are a young individual who dislikes paperwork, and claims little to no tax benefits, the new regime might sound inviting. Forgoing these tax deductions will ensure more money in your hands and will also save you the trouble of collecting investment proofs and other documents. However, for those who do take multiple tax breaks, the older regime will help save more on taxes.