Should you opt for the new tax regime or stick to the old one? Take a call after watching this video.
Budget 2020 announcement on the introduction of a new tax system from FY20-21 has confused many taxpayers. But we are here to help you resolve this confusion. First up, you need to understand the difference in slab rates under both the systems.
The slab rate for income between Rs.5L-Rs.7.5L will come down from 20% to 10% in the new system. On income between Rs. 7.5L-Rs.10L, the slab rate will come down from 20% to 15% under the new system. If you opt for the new system, the slab rate of income between Rs.10L-Rs12.5L will drop from 30% to 20% and that of income between Rs.12.5L-Rs.15L will come down from 30% to 25%. The slab rate for income of Rs.15L and above will continue to remain 30%.
Once you add up all your tax deductions (like the standard deduction of Rs. 50,000, up to Rs.1.5L u/s 80C, up to Rs.25,000 u/s 80D, up to Rs.2L on home loan interest u/s 24B, etc.), and see whether your total tax deductions constitute 20% of your gross income or not.
If yes, then you’re likely to cut down your tax liability by staying with the old system. If no, you’re likely to save more in tax by adopting the new system.
However, if your income is above the range of Rs.20L-Rs.25L, you’re likely to benefit more with the new system.
We’ve tried to explain this by comparing 3 scenarios in the video: First, assuming you stay with the old system without claiming any tax deduction, second when you adopt the new system and avail discounted slab rates by forgoing most of the tax deduction benefits, and third when you stay with the old system but claim 20% of your gross income as tax deduction.
The conclusion is you’re likely to save more in taxes by staying with the old system if you claim 20% of your gross income as tax deduction. If you don’t claim much in tax deductions, you’re likely to save more in taxes by adopting the new system.