New vs Old Income Tax Regime: Finance Minister Nirmala Sitharaman has made major changes in the tax slabs to popularize the new income tax regime and increase its acceptability among taxpayers. In the new tax regime, no tax will have to be paid on annual income up to Rs 7 lakh. Whereas in the old tax regime, no tax is to be paid on annual income of Rs 5 lakh.
The Finance Minister has announced to make the new income tax regime the default tax regime. However, it has been decided to continue with the old tax system. The Finance Minister also said that the government is not pressurizing anyone to adopt the new tax regime. But the question arises that who is better in the new tax regime and the old tax regime?
Tax slabs in new and old tax regime
Under the new tax regime, those earning up to Rs 7 lakh will not have to pay any tax. Because the government will give tax rebate of Rs.25,000. Under the new income tax regime, no tax will have to be paid on income up to Rs 3 lakh. 5% in the 3 to 6 lakh slab, 10% in the 6 to 9 lakh slab, 15% in the 9 to 12 lakh slab, 20% in the 12 to 15 lakh slab and above Rs 15 lakh 30% income tax will have to be paid on higher income.
Those who have income up to Rs 5 lakh in the old tax regime do not have to pay any tax. Because the government gives rebate of Rs 12500 which is tax. In the old tax regime, no tax has to be paid on annual income up to Rs 2.50 lakh. 5% tax has to be paid on income between Rs 2.50 to 5 lakh, 20% on income between Rs 5 to 10 lakh and 30% on income above Rs 10 lakh.
Who is better in new and old tax regime?
Suppose if a person’s annual income is Rs 10 lakh, then under the new tax regime, he will have to pay income tax of Rs 60,000. While in the old tax regime, taxpayers will have to pay tax of Rs 1,12,500. On which 4 percent education cess will be charged separately. That is, there will be a tax saving of Rs 52,500 in the new tax regime on income up to Rs 10 lakh.
If someone’s annual income is Rs 15 lakh, then under the new tax regime, tax of Rs 150000 will have to be paid, whereas in the old tax regime, tax of Rs 2,62,500 will have to be paid. On which 4 percent education cess will have to be paid separately. That is, those whose income is Rs 15 lakh will have to pay Rs 1,12,500 less tax in the new tax regime.
According to tax experts, the new tax regime may entice those taxpayers who do not take advantage of deduction and HRA. However, the old tax regime may still be tempting for taxpayers taking advantage of the deduction.
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