Save Income Tax: Understanding the New Income Tax Regime

The New Income Tax Regime, introduced in the 2020 budget by Finance Minister Nirmala Sitharaman under Section 115BAC of the Income Tax Act, offers an alternative to the traditional tax system. Designed to simplify tax calculations and provide benefits to taxpayers, this regime features altered tax slabs and reduced rates, but eliminates various exemptions and deductions available in the old system. Here’s a detailed comparison to help you decide which regime might be more advantageous for you based on different income levels.

Key Features of the New Income Tax Regime:

1. Revised Tax Slabs and Rates:
   • 0% for income up to ₹3 lakh.
   • 5% for income from ₹3 lakh to ₹6 lakh.
   • 10% for income from ₹6 lakh to ₹9 lakh.
   • 15% for income from ₹9 lakh to ₹12 lakh.
   • 20% for income from ₹12 lakh to ₹15 lakh.
   • 30% for income above ₹15 lakh.
2. Standard Deduction:
   • A standard deduction of ₹50,000 is applicable.
3. No Exemptions/Deductions:
   • Exemptions like PPF, NSC, life insurance premiums, home loan interest, and HRA are not available.

Comparative Benefits:

To understand how different income levels benefit under the new regime, let’s look at the tax payable and potential savings:

• Income: ₹7.5 lakh
  • Old Regime Tax: ₹49,140
  • New Regime Tax: ₹0 (exemption under Section 87A)
  • Savings: ₹49,140
• Income: ₹10 lakh
  • Old Regime Tax: ₹99,320
  • New Regime Tax: ₹54,600
  • Savings: ₹44,720
• Income: ₹12.5 lakh
  • Old Regime Tax: ₹1,65,750
  • New Regime Tax: ₹93,600
  • Savings: ₹72,150
• Income: ₹15 lakh
  • Old Regime Tax: ₹2,41,020
  • New Regime Tax: ₹1,45,600
  • Savings: ₹95,420
• Income: ₹20 lakh
  • Old Regime Tax: ₹3,91,560
  • New Regime Tax: ₹2,96,400
  • Savings: ₹95,160
• Income: ₹25 lakh
  • Old Regime Tax: ₹5,42,100
  • New Regime Tax: ₹4,52,400
  • Savings: ₹89,700
• Income: ₹30 lakh
  • Old Regime Tax: ₹6,92,640
  • New Regime Tax: ₹6,08,400
  • Savings: ₹84,240

Conclusion:

The New Income Tax Regime is particularly beneficial for individuals who prefer simplicity in tax filing and do not make significant investments in tax-saving instruments. However, those who leverage various exemptions and deductions might find the old regime more advantageous despite higher tax rates. Carefully evaluate your income and investment profile to choose the most beneficial tax regime.

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