New Income Tax Slab Rates introduced in the Budget 2020 for AY 2021-22 onwards is kept optional for the taxpayers, where, they are open to choose the tax slabs of old regime (FY 2019-20). The New Tax Slabs are made common for taxpayers of all age groups with reduced income tax rates allowed in income brackets up to INR 15,00,000. But, it disallows 70 tax exemptions and deductions that are available as reliefs with Old Regime Tax Rates.

Tax Slab Rates of New Regime in Budget 2020

Income Tax Rate
Up to 2.50 lakh Nil
2.50 lakh to 5.00 lakh 5% of the amount exceeding 2.50 lakh
5.00 lakh to 7.50 lakh Rs.12,500 + 10% of the amount exceeding 5.00 lakh
7.50 lakh to 10.00 lakh Rs.37,500 + 15% of the amount exceeding 7.50 lakh
10.00 lakh to 12.50 lakh Rs.75,000 + 20% of the amount exceeding 10.00 lakh
12.50 lakh to 15.00 lakh Rs.125000 lakh + 25% of the amount exceeding 12.50 lakh
15.00 lakh & above Rs.1,87,500 + 30% of the amount exceeding 15.00 lakh
  • 4% Health and Education Cess is applicable on all the above taxes.
  • Rebate of Rs. 12,500 u/s 87A is applicable for tax slabs of both old and new regimes, for taxes on annual income not exceeding Rs. 5.00 lakh.

Surcharges on New Regime Income Tax of AY 2021-22

Additional surcharges are levied for super rich with income as given below:

Income Surcharge
Total income including STCG u/s 111A and LTCG u/s 112A more than Rs.50 lakh but not exceeding Rs.1 crore 10%
Total income including STCG u/s 111A and LTCG u/s 112A more than Rs.1 crore but not exceeding Rs.2 crore 15%
Total income excluding STCG u/s 111A and LTCG u/s 112A more than Rs.2 crore but not exceeding Rs.5 crore 25%
Total income excluding STCG u/s 111A and LTCG u/s 112A more than Rs.5 crore 37%

 

We’re giving a comparative study below to show how New Tax Slab Rates can reduce your tax liability, provided you’re ready to skip the allowed deductions of Old Tax Regime:

This study is given for general salaried taxpayers under 60 years of age, excluding additional CESS.

Annual Income (in INR) New Tax Regime Old Tax Regime Difference in Tax Liability (in INR)
Slab Rates Tax Amount (in INR) Slab Rates Tax Amount (in INR)
2.5 lakh NIL NIL NIL NIL NIL
5 lakh 5% (12,500 rebate u/s 87A) NIL 5% (12,500 rebate u/s 87A) NIL NIL
7.5 lakh 10% 37,500 20% 62,500 25,000
8 lakh 15% 45,000 20% 72,500 27,500
10 lakh 15% 75,000 20% 1,12,500 37,500
12.5 lakh 20% 1,25,000 30% 1,87,500 62,500
15 lakh 25% 1,87,500 30% 2,62,500 75,000
30 lakh 30% 6,37,500 30% 7,12,500 75,000

Note: As per Tax Slabs FY 2019-20, for individuals of general/senior citizen age group, a rebate of upto INR 12,500 u/s 87A is applicable on income up to INR 5 lakh.

 

While opting for the new tax slab:-

 

  • Option to be exercised on or before the due date (31 JULY 2021) of filing ITR for AY 2021-22
  • Individuals/HUFs having no business income can choose between old and new regime tax slab every year.
  • For those, who are having business income get one time chance to choose their option. Once done, they are to follow the rule every year, unless they cease this source of income.

How to Choose the Best Tax Plan?

As per the announcement by CBDT, a taxpayer will get option to choose between old and new tax slabs every year. To choose the ideal tax slab option, what a taxpayer needs is to know whether his/her tax deduction investment amount helps to cut the excess tax expenditure of Old Tax Regime or not.

 

Note:- Common tax deductions for salaried taxpayers allowed in Old Tax Slab Rates (removed in New Tax Regime) are( Check old slabe)

  • The new tax slab disallows 70 tax exemptions and deductions, such as,
  • Leave Travel concession,
  • Standard Deduction,
  • House Rent Allowance (HRA),
  • Children education allowance
  • Conveyance allowance
  • Relocation allowance
  • Helper allowance
  • Other special allowances [Section 10(14)]
  • School Fees,
  • Chapter VI-A Deductions of 80C, 80CCC, 80CCD,
  • Deductions of 80D, 80DD, 80DDB, 80E,80EE,80EEA,80EEB,
  • Deductions of 80G, 80GG, 80GGA, 80GGC, 80IA,80IAB, 80IAC, 80IB,80IBA,
  • Interest on housing loan (Section 24)
  • Allowances of MPs/MLAs, and others that were exercised with the tax slabs of old regime.
  • Deductions employer’s contribution to NPS u/s 80CCD(2) and section 80JJAA for new employment are allowed.

 

We’re giving the easy scheme in which you can switch between Old and New Tax Slab Rates, when you wish to make an investment for tax deduction:

 

  • The taxpayers earning up to upto INR 5 lakh come under the rebate of INR 12,500 available in Section 87A and have zero tax liability. So, they are not coming under any available tax deduction.
  • For income of upto INR 7.5 lakh, if you have the investment amount of INR 1,25,000 or more eligible for tax deduction, opt for Old Tax Regime. But, if your investment is less than that, go for New Tax Regime.

 

Particulars Old Regime (In INR) New Regime (In INR)
Taxable Income 7,50,000 7,50,000
Less Deduction Amount (1,25,000) -
Taxable Amount 6,25,000 7,50,000
Tax Calculation (@20%) 37,500 (@10%)37,500

Note: The calculation is shown excluding the CESS amount.

  • For income of upto INR 10 lakh, if you have the investment amount of INR 1,87,500 or more eligible for tax deduction, opt for Old Tax Regime. But, if your investment is less than that, go for New Tax Regime.
Particulars Old Regime (In INR) New Regime (In INR)
Taxable Income 10,00,000 10,00,000
Less Deduction Amount (1,87,500) -
Taxable Amount 8,12,500 10,00,000
Tax Calculation (@20%) 75,000 (@15%) 75,000

Note: The calculation is shown excluding the CESS amount.

  • For income of INR 12.5 lakh, if you have the investment amount of INR 2,10,000 or more eligible for tax deduction, opt for Old Tax Regime. But, if your investment is less than that, go for New Tax Regime.
  • For income of INR 15 lakh, if you have the investment amount of INR 2,50,000 or more eligible for tax deduction, opt for Old Tax Regime. But, if your investment is less than that, go for New Tax Regime. Income above INR 15 lakh is taxable @30% in both the Tax Slab Rates and can be switched based on your investment planning accordingly.