Old income tax vs new income tax: Which one to choose?

With Budget 2021 leaving tax slabs unchanged, it has become important for the taxpayers to weigh the pros and cons of the new and old tax regime. From FY 2020-21, you can choose to pay income tax under an optional new tax regime. The new tax regime is available for individuals and HUFs with lower tax rates and zero deductions/exemptions. The government had implemented the new tax regime last year in Budget 2020. However, the exercise of choosing one of the tax regimes for FY 2020-21 will be required to be made starting from 1 April 2021.

What are the exemptions and deductions available under the new tax regime?

• Transport allowances in case of a specially-abled person.
• Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
• Any compensation received to meet the cost of travel on tour or transfer.
• Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.

Exemptions and deductions not claimable under the new tax regime

• The standard deduction, professional tax and entertainment allowance on salaries
• Leave Travel Allowance (LTA)
• House Rent Allowance (HRA)
• Minor child income allowance
• Helper allowance
• Children education allowance
• Other special allowances
• Interest on housing loan on the self-occupied property or vacant property
• Deduction from family pension income

New income tax slab rates

Income from Rs 2.5 lakh to Rs 5 lakh – 5%
Income from Rs 5 lakh to Rs 7.5 lakh – 10%
Income from Rs 7.5 lakh to Rs 10 lakh – 15%
Income from Rs 10 lakh to Rs 12.5 lakh – 20%
Income from Rs 12.5 lakh to Rs 15 lakh – 25%
Income above Rs 15 lakh – 30%

Existing income tax slab rates

Income from Rs 2.5 lakh to Rs 5 lakh – 5%
Income from Rs 5 lakh to Rs 10 lakh – 20%
Income above Rs 10 lakh – 30%

Which one to choose?

There is no specific answer to this question as it depends on your financial situation and your annual earnings. Both the new income tax slab vs old tax slab have their advantages and disadvantages. According to tax experts, the new option is beneficial in those cases where an individual has fewer exemptions and deductions to claim. Going by the above illustration, if your yearly income is on the higher side, it is a safer bet to choose the old tax regime as compared to the new one.

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