Personal Income Tax under the New Regime and Old Regime

Applicability: Individuals and HUFs

Tax Structure: Old Regime for HUF and an individual aged less than 60 years

Income Slab Tax Rate

Upto 2,50,000 0 per cent
From 2,50,001 to Rs.5,00,000 5 per cent
From 5,00,001 to Rs.10,00,000 20 per cent
Above Rs.10,00,000 30 per cent

However, for resident individuals earning income upto Rs.5,00,000 per annum, rebate of tax
under Section 87A upto Rs.12,500 would effectively mean that there would not be any income tax
for those earning upto Rs.5,00,000 per annum.

Further, all other relavant provisions of the Income-Tax Act, 1961 which provides for exemptions,
deductions and allowances are allowed to be claimed while computing the taxable income of the
assessee. Examples of such benefits include House Rent Allowance, Standard Deduction of
Rs.50,000 from Salary, Premium paid towards health insurance, Deduction for repayment of
Principal and Interest on Home Loans, Premium Paid towards LIC, Contribution to Provident
Fund and other options specified under Section 80C of the Act which are normally utilised by the
average Indian tax payer.

Tax Structure: Proposed New Regime as per Finance Budget 2020

The proposed tax structure is aimed at boosting the purchasing power of the average individual
in order to revive the Economic Slowdown. It is aimed at providing more money at the hands of
the Individuals in order to increase their spending which would provide increased revenue to
various sectors of the Economy.

Income Slab Tax Rate

Upto 2,50,000 0 per cent
From 2,50,001 to Rs.5,00,000 5 per cent
From 5,00,001 to Rs.7,50,000 10 per cent
From 7,50,001 to Rs.10,00,000 15 per cent
From Rs.10,00,001 to Rs.12,50,000 20 per cent
From Rs.12,50,001 to Rs.15,00,000 25 per cent
Above Rs.15,00,000 30 per cent

Rebate under 87A would also be available in this case for resident individuals. Limited
exemptions and deductions would be allowed while computing the Taxable Income of the
assessee. Examples include the employer’s contribution towards pension scheme and standard
deduction of 30% of rental income, if any.
Further, once the option to be taxed under the new regime is exercised by individuals having
business income, they can opt out of the new regime only once in any subsequent years. Option
to be taxed under the new regime after making the change to the old regime is not available.

Specified persons who wish to exercise the option of being taxed under the new regime will have
to file their Income Tax Returns within the due date specified. The option cannot be exercised
while filing belated return of income. (Due date is 30th September for those who need to get their
books audited under Sec 44AB and 31st July for other assessees. Due date is 30th November for
those assessees for whom transfer pricing audit is applicable.)

Following are examples which compare the tax outflow under both the regimes at different
income levels. Considering the demographics of the nation, the examples assume that the
individual is earning only income from Salaries. Deduction under 80C has been assumed to be at
15% of the Gross Income with an upper limit of Rs.1,50,000. Further, it assumes that individual is
not claiming any HRA in order to facilitate better comparison. Allowance of HRA would further
reduce the tax liability under the old regime.

Example 1: Income of Rs. 45,000 per month

New Old
Particulars Regime Regime
Gross Total Income 5,40,000 5,40,000
Less: Standard Deduction - (50,000)
Less: Deduction for Professional Tax - (2,400)
Chapter VI-A Deductions:
Section 80-C - (81,000)
Section 80-D - Health Insurance - (25,000)
Taxable Income 5,40,000 3,81,600
Tax Amount including Cess 17,160 -
Effective tax rate 3.18% 0% Old Regime is beneficial

Example 2: Income of Rs. 70,000 per month

New Old
Particulars Regime Regime
Gross Total Income 8,40,000 8,40,000
Less: Standard Deduction - (50,000)
Less: Deduction for Professional Tax - (2,400)
Chapter VI-A Deductions:
Section 80-C - (1,26,000)
Section 80-D - Health Insurance - (25,000)
Taxable Income 8,40,000 6,36,600
Tax Amount including Cess 53,040 41,413
Effective Tax Rate 6.31% 4.93% Old Regime is beneficial
Example 3: Income of Rs.1,50,000 per month

New Old
Particulars Regime Regime
Gross Total Income 18,00,000 18,00,000
Less: Standard Deduction - (50,000)
Less: Deduction for Professional Tax - (2,400)
Chapter VI-A Deductions:
Section 80-C - (1,50,000)
Section 80-D - Health Insurance - (25,000)
Taxable Income 18,00,000 15,72,600
Tax Amount including Cess 2,88,600 3,19,051
Effective Tax Rate 16.03% 16.43% New Regime is beneficial

Example 4: Person having Income of Rs.2,00,000 per month.

New Old
Particulars Regime Regime
Gross Total Income 24,00,000 24,00,000
Less: Standard Deduction - - (50,000)
Less: Deduction for Professional Tax - (2,400)
Chapter VI-A Deductions:
Section 80-C - - (1,50,000)
Section 80-D - Health Insurance - - (25,000)
Taxable Income 24,00,000 21,75,000
Tax Amount including Cess 4,75,800 4,83,600
Effective Tax Rate 19.83% 20.15% New Regime is beneficial

The tax outflow under both the regimes vary according to the level of income and according to
the extent of exemption, allowances available and investments made by an individual.

On a broad basis, it may be said that the older regime is more beneficial to individuals who have
committed savings plans under PF, LIC and are claiming exemptions available such as the
interest repayments on home loan and house rent allowance. The New Regime is more suited to
Individuals who have limited options to claim exemptions and do not have an opportunity to
save their income.

Further, the effect of lower tax in different slabs increases with the increase in income under the
new regime resulting in tax savings in comparison with the old regime despite utilisation of
various tax saving options available under the existing regime. However, this cannot be taken as
a general rule in every case as there can be numerous permutations and combinations depending
on the status of the assessee, amount of income, nature of income, deductions allowable,
allowances and exemptions available. It is suggested to compare the tax outflow under both the
regimes and select the one suited to each individual in order to optimise your tax savings.
Illustrative list of deductions, exemption and allowances under the 2 regimes

Sl.No Particulars New Regime Old Regime

1 Rebate u/s 87A upto Rs.12,500  
2 Leave Travel Concession u/s 10(5) - 
3 House Rent Allowance u/s 10(13A) - 
4 Standard Deduction from Salary u/s 16 - 
5 Interest on housing loan u/s 24(b) - 
6 Employer Contribution to Pension Scheme u/s 80CCD  
7 Principal Repayment of Housing Loan u/s 80C - 
8 Premium Paid towards Life Insurance u/s 80C - 
9 Premium Paid towards Health Insurance u/s 80D - 
10 Contribution to Provident Fund (including PPF) u/s 80C - 
11 Interest on Education Loan u/s 80E - 
12 Tuition fee for Education of Children u/s 80C - 
13 Specified Donations u/s 80G - 
13 Other payments eligible for Chapter VI-A deduction - 
14 Additional Depreciation and set off of unabsorbed loss - 
due to additional depreciation u/s 32(1)(iia)
15 Set off of loss from House Property, if any u/s 71B - 

Compiled by:
ANRV & Associates,
Chartered Accountants