A Comprehensive Guide to New & Old Tax Regimes
Old Income Tax Scheme:
The old income tax scheme is the traditional tax regime that has been in place for many years. This scheme offers tax rates based on income slabs along with various deductions under the Income Tax Act. The tax rates under this scheme are:
- Up to Rs. 2.5 lakh: Nil
- Rs. 2.5 lakh to Rs. 5 lakh: 5%
- Rs. 5 lakh to Rs. 10 lakh: 20%
- Above Rs. 10 lakh: 30%
Taxpayers opting for this regime can claim deductions under sections like 80C, 80D, and 80G for investments in provident funds, life insurance premiums, and donations to charitable organizations.
New Income Tax Scheme:
Introduced in the Union Budget of 2020, the new income tax scheme is an optional regime offering lower tax rates but fewer deductions. The tax rates are as follows:
- Up to Rs. 3 lakh: Nil
- Rs. 3 lakh to Rs. 6 lakh: 5%
- Rs. 6 lakh to Rs. 9 lakh: 10%
- Rs. 9 lakh to Rs. 12 lakh: 15%
- Rs. 12 lakh to Rs. 15 lakh: 20%
- Above Rs. 15 lakh: 30%
Comparison Between Old and New Income Tax Schemes:
| Features | Old Tax Regime | New Tax Regime |
|---|---|---|
| Tax Rates | Higher | Lower |
| Deductions | Available (80C, 80D, etc.) | Limited (Only NPS and health insurance under 80D) |
| Flexibility | More deductions for tax saving investments | Simpler structure with fewer deductions |
| Applicability | Existing tax regime | Optional for taxpayers |
Example Calculation:
For an individual earning Rs. 15 lakh:
| Income Slabs | Old Scheme Tax | New Scheme Tax |
|---|---|---|
| Up to Rs. 2.5 lakh | Nil | – |
| Rs. 2.5 lakh to Rs. 5 lakh | Rs. 12,500 | 5% on Rs. 3 lakh = Rs. 15,000 |
| Rs. 5 lakh to Rs. 10 lakh | Rs. 1,00,000 | 10% on Rs. 3 lakh = Rs. 30,000 |
| Rs. 10 lakh to Rs. 15 lakh | Rs. 1,50,000 | 15% on Rs. 3 lakh = Rs. 45,000 + 20% on Rs. 3 lakh = Rs. 60,000 |
| Total Tax | Rs. 2,62,500 | Rs. 1,50,000 |
Common Deductions in Both Regimes:
- Standard Deduction of Rs. 50,000 (now available under both regimes).
- Employer contributions to NPS under Section 80CCD(2).
- Interest on housing loans for rented properties under Section 24(b).
Taxpayers can select the regime that best suits their financial situation and tax-saving goals.