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Which Tax Regime to choose: Old or New?

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.

Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore
Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore

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.

When opting to the New Tax Regime, you need to file a Form 10-IE with the Income Tax Department, before filing the ITR for a financial year. Learn the steps to file Form 10-IE.

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!

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Got Questions? Ask Away!

  1. If I want to opt for the New regime but had told my employer that I am choosing the existing one, can I select new tax regime while filing ITR??

  2. Hey @riya_gupta

    An individual having salaried income and no business income has the option to choose between the old and new tax regimes every year i.e. he/she can switch regimes from year to year.

    However, individuals having business income are not eligible to choose between the new and old tax regime every year. Once they have opted for the new tax regime, they only have a one-time option of switching back to the old tax regime in their lifetime.

    Once they switch back, they will not be allowed to opt for new tax regime again.

  3. Hey @TanyaChopra

    If you have opted for old tax regime with your employer for TDS on salary, and plan to opt the new tax regime at the time of filing ITR, then you can do that by filling the new form i.e. 10-IE.

  4. Can full-time traders claim expenses like Broker charges STT, GST + other expenses like computer buy for trading, internet connection bill etc under new tax slabs?

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