Just like millions of others, did you start investing in capital markets last year? Or, landed your first job? Or, decided to become your own boss and kicked-start your own venture?
So what’s your financial story?
Let’s begin this financial year and celebrate it by planning our finances.
Unlike, a couple of years ago when most of the financial planning revolved around ‘Tax Saving’, which meant investing in tax saving FDs, ELSS mutual funds, LIC, PPF, NPS, etc. that gave average returns, you now have more freedom to chart out your financial goals.
Let’s see how, in Budget 2020, FM Nirmala Sitharaman introduced the New Tax Regime, which allows taxpayers to take advantage of lower tax rates and explore beyond tax saving investments. However, they can also continue to opt for the Old Tax Regime and claim deductions for HRA, LTA, ELSS, LIC, etc, just like earlier.
So, Old Vs New Tax Regime – Which one to choose?
Under the the New Tax Regime there are 7 slab rates whereas under the Old Tax Regime there are 4 slab rates.
|Income Level||Old Tax Rate||New Tax Rate|
|Up to INR 2.5 LPA||Nil||Nil|
|INR 2.5 LPA to INR 5 LPA||5%||5%|
|INR 5 LPA to INR 7.5 LPA||20%||10%|
|INR 7.5 LPA to INR 10 LPA||20%||15%|
|INR 10 LPA to INR 12.5 LPA||30%||20%|
|INR 12 LPA to INR 15 LPA||30%||25%|
|Above INR LPA||30%||30%|
With the new Tax Regime, you need to let go of the traditional tax-saving opportunities. However, there are still certain benefits which you are eligible for.
Let’s take a look at what you will let go of, if you opt for the New Tax Regime.
|What’s Not Covered under New Tax Regime||What’s Covered under the New Tax Regime|
|Deductions u/s 80C||Rebate u/s 87A|
|Medical Insurance Premium||Standard Deduction on Rent Received|
|Standard Deduction||Leave Encashment on Retirement|
|House Rent Allowance||Life Insurance Income to Beneficiary|
|House Loan Interest||Retrenchment Compensation|
|Leave Travel Allowance||Voluntary Retirement Scheme|
|Savings Bank Interest Deduction||Agricultural Income|
|Education Loan Interest|
Under the New Tax Regime you need to let go of the itemized deductions to enjoy lower slab rates. Where as, with the Old Tax Regime you can continue to claim itemized deductions and bring down your taxable income.
Since, it’s the beginning of the financial year, you can choose which tax regime you wish to opt for and plan your investments accordingly.
Wondering which Tax Regime to Opt for?
Taxes can be a little overwhelming, and if you are asking the same question, – “Old vs New tax regime, which one is better?”, use the Income tax calculator to compare your Tax Liability under both the Tax Regimes.
With the new tax regime, where tax filing has become much simpler, has tax planning got easier too? Check out this video as we discuss deductions and exemptions under both regimes.
How to Opt for the New Tax Regime?
Now, in case you are a salaried individual, you need to disclose your choice to the employer at the beginning of the financial year by submitting Form 12BB. This will enable your employer to calculate and deduct the correct amount of TDS.
However, you can switch the Old/New regime when filing your ITR.
If, you are a business owner or earn professional income, you can switch to the Old Tax regime only once.
Money saved is money earned and we at Quicko are to help you earn some money while we do your taxes.
Got question? Shoot’em on TaxQ&A and we promise to answer them all in the simplest way!