If there is one thing that unites all salaried employees — irrespective of place, nationality, profession or career progression — it is a shared dislike for income tax.
After all, you work hard all year and earn money. Then you’ve got to give a part of that money to the government!
How is that fair?
We feel you. That’s why we’re always looking for tricks and tips to reduce our tax liability and our income tax payments. Investments and insurance do play quite a big role in that. Or at least it used to, under the old tax regime.
Do you get the same benefits under the new tax regime?
Let’s find out!
What is the new income tax regime 115BAC?
It was introduced in the Finance Act, of 2020.
Section 115BAC of the Income Tax Act is a new amendment to the existing tax slabs. This amendment has made a few changes to the existing structure for income tax payments.
Please note that this amendment is only available for individuals and HUFs. This means all types of companies are automatically not eligible for this new tax amendment.
The table below summarises the tax slabs under the old tax regime and the new tax regime.
|Income Range (Rs lakhs)||Old Tax Regime (%)||New Tax Regime (%)|
|2.5 — 5||5||5|
|5 — 7.5||20||10|
|7.5 — 10||20||15|
|10 — 12.5||30||20|
|12.5 — 15||30||25|
Is there any benefit of the new tax regime?
Yes. If you look at the table above, the advantage is clear.
The new tax regime has split the existing tax slabs into smaller components. The people who fall under the lower end of the salary spectrum will indeed have a lot of benefits under the new tax regime.
For instance, under the old tax regime, the moment your salary exceeded Rs 5 lakhs, you would have to pay tax at the rate of 20%. Under the new tax regime, however, you’ll fall under the 10% tax slab. Only when your income exceeds Rs 10 lakhs will you have to pay 20% income tax.
But, if your income is already on the higher side, there aren’t any obvious benefits for you. As long as your salary is above Rs 15 lakhs, you’ll fall under the highest tax slab under both the old and new regimes.
What is the disadvantage of the new tax regime?
You know the million deductions and exemptions that you could avail of under the old tax regime?
Well, the new income tax regime has done away with almost all of it!
Yes, that’s right!
Although, the claim is that the multiple exemptions made the process very complicated for taxpayers. Now, with millennial taxpayers, simplicity is the key. The intention of removing all the exemptions is to make the process a lot more straightforward for taxpayers.
Some of the exemptions that have been removed include the following:
- House rent allowance
- Leave travel allowance
- Deductions for home loan interest payments
- Deductions for insurance premiums and investments
Is 80C applicable in the new tax regime?
Sadly, the myriad exemptions under Section 80C are one of the sacrifices under the new income tax regime.
But, there’s a silver lining for you.
It is up to you whether to opt for the new income tax regime or stick to the old one. It is your choice. And this is a choice that you can make every year.
So, simply work out whichever system will be beneficial for you in a particular year and opt for that!
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