Personal Income Tax

Planning w.r.t. New & Old Tax

Regime
CA Dinesh Sheth
& CA Dhruv
Baheti

TCSL - Finance
 Contents :
Sr. No. Details
1 Meaning & Importance of Tax Planning
2 Tax Planning in 5 Easy Steps
3 Tax Savings Deductions Available
4 Few Tax Saving Tips-How to save taxes without any investments
5 How to pay NIL Tax with Rs.12 L salary(Old Regime)
6 NPS- 3 Ways to save Tax & Taxation on withdrawals
7 Objective of New Tax Regime from 1.4.2020
8 Features of new Tax Regime
9 Difference-Tax Rated in Old & New Regime
10 Steps to choose the New Regime
11 Factors to Choose Tax Regime
12 ET Video- 3 Examples
 Tax Planning
• Arrangement of Personal Financial Affairs.
• Legitimately taking full benefits of :
– Deductions
– Exemptions
• So that the Tax Liability reduces to the
optimum(minimum) level.
 Tax Planning in 5 Easy Steps(Old
Regime)
• Step 1: Think of tax planning as a financial
planning exercise :
– Give Sufficient Time & Thought
– Should fit with overall Financial Goals
– Understand investments avenues with tax benefits
available
– Ensure Disciplined & well informed investment
decisions
 Tax Planning in 5 Easy Steps
• Step 2: Start early
– Give due attention & plan in advance
– Not a year End activity

• Step 3: Calculate your tax liability

– Compute GTI , Deductions & Taxable income
 Tax Planning in 5 Easy Steps
• Step 4: Do your risk profiling :
– What is my risk tolerance level ?
– Depends on your age, income & financial
goals/requirements, etc.
– Risk Averse Vs. Risk Taker
• Step 5: Choose the right avenues
– Thoroughly check with your time horizon, risk
appetite & investment strategies
 Tax on Salary Components
Fully Taxable : Partly Taxable :
Basic Salary House Rent Allowance (HRA)
Dearness allowance Leave Travel Allowance (LTA)

Special Allowance Vehicle Maintenance

Incentive Pay Uniform Allowance

Bonus Children Education Allowance (Up to Rs.

100 per month (Rs. 300 extra for hostel)
Overtime per child up to a maximum of 2 children
is exempt)
Arrears
Food Coupons
Food Allowance
Books and periodicals (As actuals)
Furniture Allowance
Standard Deduction of Rs, 50,000
Shift Allowance
Tax Saving Sections I
Section 80C / 80CCC / 80CCD
 Few Tax Saving Tips - How to save taxes without any
investments ? (As per Old Regime)
• HRA – Exemption u/s 10(13A)
• Employee Contribution to PF u/s 80 C
• Tuition Fees of 2 children u/s 80 C (Full time course of School/College)
• Stamp Duty of House purchased in current FY u/s 80 C
• Repayment of principal amount on Home Loan u/s 80 C
• Interest on Higher Education (Class 12th +) paid u/s 80 E for Self, Spouse and
Children
• Donations to Sec 80 G registered institutions (50 or 100% of donation as
applicable)
• Medical treatment cost of disabled dependent u/s 80 DD (Maximum Rs.1,25,000)
(Spouse, Children, Parent and Siblings)
• Medical treatment cost of specific diseases defined u/s 80 DDB (Maximum
Rs.40,000)
• Interest on Saving Bank a/c up to Rs. 10,000 u/s 80 TTA (FD/RD not covered here)
How to pay NIL Tax with Rs.12 Lacs
salary (As per Old Regime)
Deduction of NPS Contribution
(Tier 1 a/c only)
 Taxation on NPS Withdrawals (Tier 1 a/c)
• Taxation on Partial Withdrawal : Amount can be withdrawn after 3
years of NPS subscription up to 25 % of Subscriber contribution is
exempt from tax(for Medical ,education purpose)
• Taxation on lump sum withdrawal on retirement : After Subscriber
attain the age of 60, up to 60 % of the total corpus withdrawn in
lump sum is exempt from tax.
• Taxation on Annuity purchase : Annuity income that you receive in
the subsequent years will be subject to income tax.
• Premature exit : In case of premature exit, 20% amount can be
withdrawn as a lump sum, which is taxable as per investor’s income
tax slab rate. The rest 80% is to purchase an annuity. And the
annuity income is taxable in the respective year of payout as per the
investor’s income tax slab rate.
 Features - New Tax Regime
a. New Regime is applicable from FY 2020-21. Salaried
Individuals has the option to select old or new regime on
yearly basis.
b. Tax slabs have increased from 5 to 7 (slab wise rates given
in next few slides)
c. Rebate u/s 87 A for taxable income up to 5 Lacs is
available under both the Regimes.
d. Tax Rates lowered in New Regime
e. It does not consider the deductions, exemptions &
investments made except :
• It considers deduction for NPS employer contribution (up to 10%
of basic salary + Dearness Allowance) (u/s 80 CCD(2))
• Travelling / Daily / Conveyance Allowance (As Actuals) u/s 10
 Objective of New Tax Regime :

a. More than 70 Deductions & Exemptions were

available in old tax regime.
b.To make IT computation more simpler.
c. To make more funds available for Tax payer
d.To increase consumption side to boost the
economy. Govt wanted to discourage savings and
put more cash in economy.
 Tax Rate : Old V/s New Regime

• #Basic exemption income in case of resident individual of 60 years or more and 80 years
of more continue to remain same at Rs. 3 lakh and Rs. 5 lakh respectively in new regime.
 What deductions are NOT allowed under the New income tax regime?

S. No. Particulars
1 Standard Deduction Rs. 50,000/- and Professional Tax
2 House Rent Allowance (HRA) and LTA
3 Interest on housing loan (Section 24) Rs 2 lakhs
4 Deduction of employee’s contribution to NPS u/s 80CCD(1B) RS 50,000/-
5 Chapter VI-A Deductions of 80C, 80CCC, 80CCD, RS 150,000/-
Deductions of 80D(Mediclaim), RS 25000/-( (Rs 50,000 for parents and senior
6
citizens)
7 Deductions 80 TTA (Savings bank interest: Rs 10,000)
Deductions 80 TTB Interest income on Saving and FD/RD (for senior citizens):
8
Rs 50,000
9 Deductions 80 E (Interest paid on higher education for eight consecutive years)
10 Deductions 80 DD : (Rs 75,000 to Rs 1.25 lakh depending on disability)
11 Deductions 80 DDB : Rs 40,000 (serious diseases Rs 1 lakh for senior citizens)
80EE,80EEA (Interest deduction on Affordable Housing upto 31.3.22 Rs. 1.5
12
Lacs) ,80EEB(interest payment on electric vehicle up to 1.5 Lacs)
13 Deductions of 80G (50-100%) of the amount donated
IT Computation New V/s Old Regime
(Old is beneficial)
IT Computation New V/s Old Regime
(New is beneficial)
 Factors to choose the Tax Regime

1. Tax Minimisation.
2. Funds (Liquidity ) requirement
3. Financial planning goals & securing family future
needs .

• Step wise analysis is given in the next slide.

 Steps to choose the Tax Regime
1. Which regime you should pick - (due to Complex IT rules)
2. Steps :
a. Calculate tax considering all allowable
deduction/exemption under old regime like HRA, LIC,
interest/principal on house loan, NPS, Medical insurance,
Standard Deduction etc.
b. Calculate tax on gross salary less deduction/exemption
allowed under new regime like NPS (employer
contribution), Travelling/Conveyance/Daily allowance.
c. Choose lower of (a) and (b).
 Which is better Old or New Regime?
Breakeven point in terms of specified deductions (which are not available in
new regime) at various level of income (gross salary) have been tabulated in
the following table. New regime is beneficial if specified deduction is less
than the amount mentioned in the below table whereas old scheme is
beneficial if specified deduction is more:
 Example of Breakeven :
In the example, person has specified deduction (Rs. 2,02,400) which is more
than breakeven point (Rs. 1,91,670). Hence, Old regime is beneficial.
 Conclusion & Key Points :
1. We should start the Tax Planning at the start of
the FY (in April)
2. Review & choose the suitable option for
NPS,VPF,SA & LTA
3. Pl. check funds requirement & all available Tax
deductions & Exemptions .
4. Review & choose the suitable Tax Regime
5. Review the Tax Regime Every Year
 Let us watch a video on Old v/s New
Taxation Regime

https://www.youtube.com/watch?v=dw-XlRY
RteM
Thank You