Comparison of Old Vs New Tax Regime (MS)
Comparison of Old Vs New Tax Regime (MS)
Comparison of Old Vs New Tax Regime (MS)
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Income Tax Rates under the New Tax Regime vs. Old Tax Regime
The budget has proposed a new tax regime in addition to the existing, i.e. old tax regime. The new tax regime is
optional. To put it simply, the assessee can choose between the new and old regime depending on what is best
suitable from a tax planning point of view. The tax rates under the old and new regime are as under:
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Note: The above rates are subject to surcharge and cess, as applicable.
New vs. Old – Which is better?
The new tax regime has proposed lower income-tax rates, for income segments up to Rs 15 lakh. However, you
need to remember that the proposed lower tax rates will be applicable only if you are willing to give up exemptions
and deductions available under various provisions of the Income Tax Act, 1961.
This means that when you choose the new tax regime, you will have to for-go some exemptions (such as Leave
Travel Allowance (LTA), House Rent Allowance (HRA) etc.) and deductions available under chapter VI A of the Act
that grant deductions under Section 80 (such as 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG,
80GGA, 80GGC etc.).
Only the deduction under Section 80CCD(2) (i.e. employer’s contribution on account of an employee in a notified
pension scheme) and Section 80JJAA (i.e. for new employment) can be claimed.
Even the Standard Deduction under Section 16 (which is currently Rs 50,000) available to salaried individuals and
the deduction on home loan interest, under Section 24(b) will be disallowed. Around 70 exemptions and deductions
have been removed in the new tax regime.
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Old Regime seems to be a better option for High-Income Earners
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Old Regime seems to be a better option for High-Income Earners
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Total Tax Outgo 65,000 78,000
Old Regime seems to be a better option for High-Income Earners
Going by the above illustration, if the gross income is Rs 10 lakh or above and you are utilizing deductions under
Section 80C, 80D, and 24(b) of the Income Tax Act, 1961, then you are better off under the older regime; it works in
your favor from a tax planning standpoint. While for individuals in the middle-income group, earning a gross income
of say Rs 5 lakh; the new regime may prove advantageous.
That being said, if you are looking to fulfill your financial obligations, namely - wealth creation through investments in
tax-saving instruments; paying premiums to address insurance needs (life and health); paying children’s tuition fees;
paying Equated Monthly Installments (EMIs) of an education loan; buying a house with a home loan; and so on, the
older regime still works in the interest of your financial wellbeing.
Note* - The above views are only illustrative and readers are advised to take decisions based on their own assessment only.
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What goes out in New Tax Regime
Some of the 70 exemptions and deductions which employees would have to for-go under the new regime are:
Note* - The ceiling for total benefits of Employer contribution to PF/SAF/NPS has also been restricted to Rs. 7,50,000 /- in both
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regimes which would have an effect of increased tax liability in some cases.
What stays in New Tax Regime
Some 50 tax exemptions which have been left untouched in the new regime are:
1. Standard deduction on rent: 30% of the rent received under income from house property.
2. Agricultural income: No limit
3. Income from life insurance: If insurance cover is 10 times the annualized premium
4. Retrenchment compensation: Rs 5 lakh
5. VRS proceeds: Rs 5 lakh
6. Leave encashment on retirement: Rs 3 lakh (No limit for govt. workers)
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Choosing between the two regimes n MS Payroll Portal
We, at Megasoft, have developed an online TDS calculator which will assist employees to check their TDS amounts
under both regimes and decide to opt for a regime accordingly. This calculator can be accessed at the time of
declaring investment as shown below:
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Note* - This option can only be exercised once in the financial year.