New Income Tax Regime - Will it save you money? (Photo Credit: Image by Free stock photos from www.rupixen.com from Pixabay)
Union Government introduced new tax slabs with reduced rates for an annual income of up to Rs 15 lakh for those foregoing exemptions and deductions under a simplified tax regime during Budget 2020-21. However, the new income tax system is only optional right now and a taxpayer can choose to remain in the existing regime with exemptions and deductions. It means that one can either choose the new tax regime and give up any deductions to taxable income, or you can opt to stay with the existing tax slab with several deductions.
But how to choose between new tax regime and existing tax regime? Will the new income tax regime save you money? Here's one way to find out. The government has launched a simple income tax calculator to compare the tax slabs and determine whether the old tax regime will benefit you or if the new tax regime is more beneficial for you. You just need to know your total annual income and the amount of deductions you expect to claim.
In the new tax slabs, people with an annual income of up to Rs 2.5 lakh will not have to pay any tax. For income between Rs 2.5 lakh to Rs 5 lakh, the tax rate is 5 per cent. it is the same in the old (and existing) tax regime. Those with an income of Rs 5 lakh to Rs 7.5 lakh will have to pay tax rate of 10%; between Rs 7.5 lakh and Rs 10 lakh 15% and 20% for income between Rs 10 lakh and Rs 12.5 lakh. The tax rate for income between Rs 12.5 lakh and Rs 15 lakh will be 25 per cent and 30 per cent for any income above Rs 15 lakh.
Here's how you can compare the new and existing tax regime and find out which regime will save you more money:
*This calculator only gives a general idea about the difference between the two tax regimes.
If an individual taxpayer opts for the new tax regime, they would have to forgo 70 tax exemptions and deductions. These include deductions under: