Salaried Employee Should Select Which Tax Scheme : Old Or New Tax Regime

New Tax Regime

There was a major change in the union Budget 2020 and tax slabs were altered, and the tax payment with this new tax slab is called as New Tax Regime. This tax regime offers good tax savings even without having long-term savings like FD/PPF etc. The major drawback of this regime is that several exemptions just as HRA, LTC, 80C, and 80D can not be claimed. This tax scheme is not popular because of  such reasons although the union government had announces some major changes in it-

• Higher Tax Rebate Limit: The tax rebate limit has been increased up to 7 lakhs irrespective of the old tax regime where the tax rebate limit was only 5 lakhs. This shows that employees or individual taxpayers have to pay less tax subject to exemption and total income. 
• Minimum Income Tax Limit: The tax exemption limit has been increased up to 3 lakhs. 
• Tax Slabs: The tax slabs in the new tax regime are as follows- 

Old Tax Regime

The old tax slab was implemented prior to the introduction of the new tax scheme in the budget 2020. The old tax slab was quite popular and the adopter of this tax slab were enjoys almost 70 exemptions and deductions including HRA and LTC. The most popular deduction under this regime was 80C which permits the exemption of up to 1.5 lakhs from taxable income. The tax slabs are:

Tax Calculation Examples

Now we compute taxes in certain tax regimes and try to find out which one is better under certain given assumptions:

• Total deductions are ₹1.5 lakhs or less: New regime will be beneficial, 
• Assumptions in old tax computation- 1.5 L Deductions and 50k Standard Deductions.
• New Tax regime Deduction before budget 23- No deduction, Tax rebate up to 5L
• New Tax regime Deduction After budget 23- 50k Standard Deduction, Tax rebate up to 7L

• Total deductions are more than ₹3.75 lakhs: Old regime will be beneficial
• Assumptions in old tax computation- 80C- 1.5L, 80CCD(1)- 50k, 80D- 25k,  Deductions and 50k, Standard Deductions, loan interest- 1.5L.
• New Tax regime Deduction before budget 23- No deduction, Tax rebate up to 5L
• New Tax regime Deduction After budget 23- 50k Standard Deduction, Tax rebate up to 7L

• When total deductions are between ₹1.5lakhs to ₹3.75 lakhs: will depend on your income level
• Assumptions in old tax computation- 80C- 1.5L, 80CCD(1)- 0k, 80D- 25k,  Deductions and 50k, Standard Deductions, loan interest- 1.0L.
• New Tax regime Deduction before budget 23- No deduction, Tax rebate up to 5L
• New Tax regime Deduction After budget 23- 50k Standard Deduction, Tax rebate up to 7L

Conclusions

In order to know the suitable tax regime follow the given steps:

• Download the Excel attached to the blog.
• Fill in the input cells marked in yellow color. 
• Once the data input is over, the Excel on the right side will show the required output "SAYING WHICH TAX REGIME NEEDS TO BE SELECTED IN ORDER TO GET MAXIMUM POSSIBLE SAVING".
• Enjoy the ITR filing........