Income Tax Rates For FY 2021-22: How to decide on between Old Regime and New Regime

Image Source : PTI (FILE) Income Tax Rates For FY 2021-22: How to decide on between Old Regime and New Regime 
While presenting the Finance Bill together with Budget 2015, the then Finance Minister Arun Jaitley highlighted an attention-grabbing statistic in his Budget Speech. It was identified that although the company tax charges prevailing within the nation at the moment was 30%, on account of varied exemptions and deductions which have been accessible to corporates, the efficient tax price got here out to be 23%. The Minister dedicated to the House that over time, the deductions/exemptions accessible to the corporates can be phased out and as a consequence, the company tax charges can be diminished to 25%.

Jump to September 2019, and the present authorities got here out with a brand new scheme whereby the corporates got an choice to opt-out of sure tax advantages in return for a decrease company tax price of 25%. The new simplified scheme obtained a red-carpet welcome from the company world. Considering the success of the simplified regime for the corporates, an identical non-obligatory regime was launched for people/HUF vide Finance Act, 2020 when it comes to which the people/HUF can opt-out of sure tax advantages in change for concessional slab charges. Eligible taxpayers can select to avail the advantage of the simplified scheme with impact from Financial Year 2020-21.

Now, with the monetary yr coming to an finish, people, particularly these employed, are having a tough time selecting between the outdated regime and the brand new regime. In the following paragraphs, the 2 regimes have been juxtaposed to help the people in making an knowledgeable alternative whereas making declarations to their employers.

“The new regime provides for concessional slab rates as compared to the rates provided in the old regime,” Pitam Goel, founder companion, VPTP & Co, mentioned.

A comparative evaluation of the progressive tax charges relevant beneath each the regimes has been highlighted as beneath:

Image Source : INDIA TVIncome Tax Rates For FY 2021-22

 
Since the whole revenue of people/HUF is taxed on a progressive foundation, it’s apparent that if the whole revenue stays the identical in each the outdated and new regimes, an individual choosing a brand new regime will endure a decrease tax. The Finance Minister whereas explaining the advantage of the brand new regime in her Budget Speech for the yr 2020-21 acknowledged that an individual having an revenue of Rs 15 Lakhs and never availing any tax deduction will doubtlessly save Rs. 78,000/- within the type of discount of income-tax. It is obvious that within the acknowledged instance when the whole revenue stays the identical beneath each the regime, there can be a tax profit within the new regime. Thus, within the case of people who usually are not eligible to say any deduction/exemption, the brand new regime will end in a decrease tax.

However, life and tax legal guidelines aren’t so simple as the instance acknowledged above. Normally, an worker can be claiming numerous kinds of deductions/exemptions resembling HRA, LTC, 80C, curiosity on the self-occupied home and many others. Just like all good issues don’t come free, the concessional tax price come at a value too.

An particular person choosing the brand new regime is not going to be entitled to say a sequence of deduction/exemption, a number of of which have been highlighted as beneath:

Standard deduction of Rs. 50,000
House Rent Allowance (HRA)
Leave Travel Allowance (LTA)
Children schooling allowance
Interest on housing mortgage on the self-occupied property or vacant property
Other Chapter VI-A deduction together with the deduction of Rs. 1,50,000 as offered beneath part 80C and deduction for medical insurance coverage beneath Section 80D
The new regime, subsequently, considerably alters how complete revenue is computed and will end in a better revenue being supplied to tax. For instance, an individual receiving a wage of Rs. 20,00,000/-, entitled to say exemption of Rs. 5,00,000/- on account of HRA and deduction of Rs. 1,50,000/- on account beneath part 80C could find yourself paying Rs. 1,24,800/- within the new regime when in comparison with the outdated regime. Therefore, the selection between the outdated and new regime needs to be made by exercising due warning.

The main issue that may go into making the selection is the quantum of revenue earned by the particular person. If a serious a part of the revenue earned by a person is taxable at a 30% slab price and such particular person can be entitled to avail advantages resembling HRA, LTA and many others, such particular person is healthier off staying within the outdated regime. This is as a result of such people will find yourself saving 30% of your complete deductions and such financial savings could far exceed the tax profit within the new regime. However, in case an individual has a deduction beneath part 80C and has revenue beneath Rs. 15,00,000/-, the person could find yourself saving tax within the new regime. In such a case, a consequential profit that will come up on account of choosing the brand new regime could also be that the person needn’t make investments Rs. 1,50,000/- in PF, Insurance and many others solely to save lots of tax and mentioned the cash might be freely utilized by the people.

The choice for exercising the brand new regime needs to be made on the time of submitting return of revenue. However, virtually, the workers can be required to take a name throughout the monetary yr and talk the identical to their employer. The resolution will have an effect on the tax withheld by the employer and the best way wage payable to the worker is structured.

As acknowledged at first, the brand new regime is a give and take. Individuals need to resolve for choosing the brand new regime based mostly on the revenue earned, potential exemption/deduction, and the sums accessible for making investments (to say the deduction). Although, the federal government has dubbed the brand new construction as a ‘simplified’ taxation regime, the brand new regime and the choice to go for it complicates the already complicated taxation provisions.
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