Which is better option Old Regime or New for Tax saving?

The Finance Act 2020 announced a new tax regime under Section 115BAC in order to make taxation simpler for people. This new tax regime has given an option to individuals and HUF taxpayers to pay income tax at lower rates. This was long demanded by most taxpayers, however, the option for this concessional tax regime came with a cost, it required the taxpayer to forego certain specified deductions. To add to this confusion, the finance minister gave taxpayers a choice between the new regime and existing one, leaving it to them to decide which they would like to opt for. In this article, let us look at the new regime in detail, its benefits and compare it to the existing tax system.

How can assessee opt for new or old regime?

If an individual/HUF opts for new tax regime for FY 2020-21, then form 10IE has to be filed at the time of filing ITR for FY 2020-21 to inform the tax department that they are choosing the new tax regime.
As per the income tax laws, an individual having business income shall submit this form before the due date of filing ITR i.e. July 31 (unless extended by the government).
The due date of filing ITR for FY 20-21 has been extended till 30^th September, 2021.
For salaried individuals, the form can be submitted before/at the time of ITR filing, even if ITR is filed after the due date.

What information is required to be furnished in Form 10-IE?

The individual/HUF is required to furnish the following information in Form 10-IE:

Name of the individual/HUF
Address
PAN
The financial year for which option is exercised
If the individual/HUF has income under business or profession
Date of birth
Nature of business/profession, (mandatory if an individual is having income from business and profession)
Whether the individual/ HUF has any Unit in International Financial Services Centre (IFSC), as referred to in section 80LA(1A)
Whether option under clause section 115BAC(5)(i) has been exercised in Form 10-IE for any earlier previous year/ years and is now being withdrawn (to be activated if withdrawal option is selected)

What deductions are not allowed in the new tax regime?

The following are the deductions and exemptions you cannot claim under the new tax system:

Sr no	Deductions or Exemptions not allowed	Amount of deduction/ Exemptions
1	House rent allowance u/s 13A	Lower of 40%/ 50% Of (Basic+ DA+ Turnover commission) or Actual amount received or Rent paid Minus 10% of (Basic+ DA+ Turnover commission)
2	Leave travel allowance	Exemption is available only on the actual travel costs i.e., the air, rail or bus fare incurred by the employee
3	Food coupons	Upto Rs. 50 Per meal is exempt the excess is taxable under salary
4	Children Education allowance	Max Rs. 100 per month per child upto Maximum 2 child
5	Helper allowance	Fully Exempt
6	Special compensatory allowance	Fully Exempt
7	Border area allowance	Fully Exempt
8	Tribal areas allowance	Rs. 200 per month
9	Transport allowance for employees of transport	Lower of amount received X 70% or Rs. 10000 pm
10	Travelling allowance	Fully Exempt
11	Island duty allowance	Fully Exempt
12	Uniform allowance	Fully Exempt
13	Research allowance	Fully Exempt
14	Leave encashment benefit	Lower of Rs. 3,00,000 per annum or Annual leave encashment amount or Average salary of last 10 months or Salary per day X untilised leave (Considering maximum 30 days allowed leave per year)
15	Reimbursement of medical expense u/s 17(2)	Amount of expense incurred on treatment in government hospital or Employers hospital or Government recognised hospital
16	Any allowance granted to an employee to meet the hostel expenditure on his child	Max Rs. 300 per month per child upto Maximum 2 child
17	Compensatory Field Area Allowance	Fully Exempt
18	Compensatory Modified Field Area Allowance	Fully Exempt
19	Underground Allowance for mine workers	Max Rs. 800 per month
20	Daily allowance by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof u/s 10(17)	Fully Exempt
21	Entertainment allowance u/s 16	For government employees only: Lower of 20% of Basic salary or Actual amount received or Maximum Rs. 5000
22	Profession tax u/s 16	Maximum Rs. 2,500
23	Interest on Housing loan u/s 24(2) with respect to self-occupied property	Maximum Rs. 2,00,000
24	Standard deduction u/s 16	Maximum Rs. 50,000
25	Deduction with respect to Specified investment under 80C	Maximum Rs. 1,50,000
26	Deduction with respect to Contribution to NPS u/s 80CCD(1B)	Maximum Rs. 50,000
27	Deduction with respect to mediclaim premium or medical expenses u/s 80D	Maximum Rs. 50,000 / Senior Citizen then Rs 75,000
28	Deduction with respect to medical treatment of handicapped relative u/s 80DD	Maximum deduction Normal disability =75,000 and for Severe disability = 1,25,000
29	Deduction with respect to treatment of specified disease u/s 80DDB	Maximum deduction Lower of Actual expenses or Maximum Rs. 40000 for other and 100000 for senior citizen
30	Deduction with respect to Interest on Education Loan u/s 80E	Interest amount for 8 consequtive years
31	Deduction with respect to donation to trust or political parties under section 80G	Amount of donation
32	Deduction with respect to donation to trust or political parties under section 80GGC	100% of Donation made
33	Deduction with respect to interest on savings account u/s 80TTA	Lower of Amount of saving interest or Rs. 10,000
34	Deduction with respect to interest on Deposits to senior citizens u/s 80TTB	Lower of Amount of interest or Rs. 50,000
35	Additional Deduction for Interest on Home Loan u/s 80EE	Maximum Rs. 50,000
36	Additional Deduction for Interest on Home Loan u/s 80EEA	Maximum Rs. 1,50,000
37	Deduction for Interest on electric vehicle loan u/s 80EEB	Maximum Rs. 1,50,000
38	Deduction for handicapped assessee under section 80U	Normal= 75,000 or Severe= Rs. 1,25,000
39	Deduction for Royalty from books under section 80QQB	Lower of Eligible royalty or Rs. 3,00,000
40	Deduction for Royalty from patent under section 80RRB	Lower of Eligible royalty or Rs. 3,00,000
41	Deduction for donation to scientific research Organisation under section 80GGA	100% of Amount of donation
42	Deduction under section 80GG for rent paid other than HRA	Lower of Rs. 5000 per month or 25% of Adjustment gross total income or Rent paid- 10% of Adjustment gross total income
43	Deduction u/s 80JJA with respect to Income from collecting and processing biodegradable waste	100% of profit of business
44	Deduction under section 57 with respect to family pension	Lower of Rs. 15,000 or 1/3 rd of the amount of pension received
45	Deduction u/s 10(32) In Case of Income from Minor Child	Maximum deduction of Rs. 1500 per child
46	Deduction u/s 10AA with respect to income of SEZ unit	Maximum deduction is 100% of profits for 1st 5 years of business and 50% of profits for the next 5 years of business
47	Deduction of deprecation as per section 32	Amount of depreciation as per rate schedule of income tax act
48	Deduction u/s 32AD for investment in new Plant and Machinery in notified backward area	15% of the Actual cost of new plant and machinery installed
49	Deduction with respect to specified business under section 35AD	100% of the profit from specified business
50	Deduction with respect to expenditure on agricultural extension project u/s 35CCC	150% of the expenditure allowed on agricultural extension
51	Deduction with respect to tea, coffee, rubber business u/s 33AB	Lower of Actual amount deposited in NABARD a/c or 40% of PGBP before this deduction
52	Deduction with respect to petroleum and natural gas business u/s 33ABA	Lower of Actual amount deposited in site restoration account or 20% of PGBP (before the deduction)
53	Deduction with respect to contribution to outsiders to IIT national laboratory for scientific research under section 35(2AA)	150% of the contribution paid
54	Deduction with respect to expenditure on scientific research u/s 35	100% deduction for Revenue and capital expenditure incurred for scientific research

What deductions can one claim if they switch to the new tax regime?

Assesses can claim the following deductions if they opt for the new tax regime:

Sr no	Deductions or Exemptions not allowed	Amount of deduction/ Exemptions
1	Exemptions with respect to gratuity under section 10(10)	Lower of Last drawn salary X no of years employed X 15/26 or Rs. 20 Lakhs or Actual gratuity received
2	Exemptions with respect to commuted (lumpsum) pension u/s 10(10A)	For government employees= Fully exempt and other employees= if gratuity is received by the employee then 1/3 rd of the commuted pension is exempt else 50% of the commuted pension is exempt
3	Exemptions on Maturity proceeds of Life insurance u/s 10(10D)	Fully exempt
4	Deduction under section 80CCD(2) with respect to Contribution by employer to NPS	Lower of employer contribution or Maximum 10% of the Salary
5	Interest on Housing loan u/s 24(2) with respect to let out property	Whole amount of interest on housing loan
6	Deduction under section 80JJAA with respect to additional employees cost	Maximum 30% of additional employee cost incurred during the year

What are the slab rates in case assessee is opting for new tax regime u/s 115BAC?

If assessee is opting for new tax regime the following are the slab rates applicable:

Slabs of Income	Tax Rate
0 to 2,50,000	0%
2,50,001 to 5,00,000	5%
5,00,001 to 7,50,000	10%
7,50,001 Rs. 10,00,000	15%
10,00,001 to 12,50,000	20%
12,50,001 to 15,00,000	25%
Above Rs. 15,00,000	30%

Apart from above health and education cess at the rate of 4% is charged on the total tax calculated.

What are the slab rates in case assessee is opting for old tax regime?

If assesee is opting for old tax regime the following are the slab rates applicable:

Slabs of Income	Tax Rate
0 to 2,50,000	0%
2,50,001 to 5,00,000	5%
5,00,001 to 10,00,000	20%
Above Rs. 10,00,000	30%

Apart from above health and education cess at the rate of 4% is charged on the total tax calculated.

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Old or New Tax regime Which is favourable for FY 2020-21?

The budget 2020 saw the finance minister Nirmala Sitaraman announce a new tax regime with more tax slabs and lower tax rates. This was long demanded by most taxpayers, however, the option for this concessional tax regime came with a cost, it required the taxpayer to forego certain specified deductions. To add to this confusion, the finance minister gave taxpayers a choice between the new regime and existing one, leaving it to them to decide which they would like to opt for. In this article, let us look at the new regime in detail, its benefits and compare it to the existing tax system.

Tax Slab Rates in Old and New Tax Regime

Income Tax Slab	Old Date	New Rate
Up to Rs 2.5 lacks	–	–
Rs 2.5 lacks to Rs 5 lacks	5%	5%
Rs 5 lacks to Rs 7.5 lacks	20%	10%
Rs 7.5 lacks to Rs 10 lacks	20%	15%
Rs 10 lacks to Rs 12.5 lacks	30%	20%
Rs 12.5 lacks to Rs 15 lacks	30%	25%
Rs 15 lacks and above	30%	30%

What deductions are not allowed in the new tax regime?

Deductions under Chapter VI-A – Such deductions under sections 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EEA except those under 80CCD(2) and 80JJAA
Interest incurred on home loan (Section 24b)
LTC (Section 10(5))
HRA (Section 10(13A))
Allowance on income of minor (Section 10(32))
Standard deduction from Salaries (Section 16)
Exemption to SEZ (Section 10AA)
Additional depreciation (Section 32(1)(iia)
Deduction from family pension (Section 57iia)
Section 32AD/33AB/33ABA (Investment in new Plant & Machinery in notified backward areas, Tea development Account, Site Restoration Fund)
Section 35/35AD/35CCC (Expenditure on Scientific Research/Expenditure on Agriculture extension project}
Not allowed to set off losses from earlier assessment years due to above mentioned deductions or loss under the head ‘’Income from house property’’
In case of Individual or HUF having no business Income, option to opt for old vs new shall be exercised for every previous year before filling return of income.

What deductions can one claim if they switch to the new tax regime?

One can claim the following deductions even if they opt for the new tax regime:

Deduction u/s 80CCD(2) –Employer contribution to your pension account
Deduction u/s 80 JJAA –additional employee cost
Transport allowance for differently abled persons.
Conveyance allowance for performance of duties.
Allowance given for cost of travel/tour
Daily allowance given under certain conditions.

Let us understand the same with the help of an example:

	Old Tax Regime	New Tax Regime
Annual Income	2,000,000.00	2,000,000.00
(-) Less
Standard Deduction	50,000.00	–
Deduction u/s 80C	120,000.00	–
Contribution to NPS	20,000.00	–
HRA	50,000.00	–
Health Insurance premium paid under Section 80D	20,000.00	–
Leave Travel Allowance (LTA)	30,000.00	–
Net Taxable Income	1,710,000.00	2,000,000.00
Tax on Above
Up to Rs 2.5 lacks	–	–
Rs 2.5 lacks to Rs 5 lacks	12,500.00	12,500.00
Rs 5 lacks to Rs 7.5 lacks	50,000.00	25,000.00
Rs 7.5 lacks to Rs 10 lacks	50,000.00	37,500.00
Rs 10 lacks to Rs 12.5 lacks	75,000.00	50,000.00
Rs 12.5 lacks to Rs 15 lacks	75,000.00	62,500.00
Rs 15 lacks and above	63,000.00	150,000.00
Total Tax	325,500.00	337,500.00

Which tax regime should a taxpayer opt for?

Before opting for a tax regime, one has to consider the following points:

The new regime provides for concessional tax rates vis-à-vis tax rates in the existing or old regime. Further, as most of the exemptions and deductions are not available, the documentation required is lesser and tax filing is simpler.
However, new tax scheme is beneficial to only those taxpayers who have not invested in various tax saving schemes and also not salaried employee enjoying HRA etc.
Old scheme is suited to middle income group having sufficient investments in various tax saving schemes.
Under the new regime, all taxpayers would be treated at par and benefit of deduction/allowances would not be a criterion for availing the tax exemption.
This may be helpful for those categories of taxpayers who may not subscribe to the specified modes of investments, as most of the investments have a lock-in period, before which it cannot be withdrawn.
They could invest in open-ended mutual funds/instruments/deposits, which provides them good returns as well as flexibility of withdrawal as well.
For instance, certain eligible instruments have a longer lock-in period such as fixed deposits with banks and post offices have a lock-in period of five years, equity-linked savings schemes (ELSS) is for a period of three years, National Savings Certificates (NSC) for five years, etc.
The reduced tax rate would provide more disposable income to the taxpayer, who could not invest in specified instruments due to certain financial or other personal reasons.
The old income tax regime by enforcing investments in specified tax-saving instruments, over the period inculcated the savings culture in individual and led to savings for any future eventuality like marriage, education, purchase of house property, medical, etc.

In light of the above and considering the new income tax regime, wherein certain deductions and exemptions would not be applicable, if taxpayers want to opt for the concessional new tax regime, they may evaluate both the regimes. A taxpayer who is looking for flexibility in investment choices and does not want to invest in the specified eligible instruments, may consider opting for the new tax regime. However, it is advisable to do a comparative evaluation and analysis under both regimes, to see what works out best for you, before opting to continue with the old one or opting for the new one.

The choice can be exercised every year and any regime which is beneficial can be adopted by the individual (except for those who have income from business or profession). Individuals who have income from business or profession cannot switch between the new and old tax regimes every year. If they opt for the new taxation regime, such individuals get only one chance in their lifetime to go back to the old regime. Further, once you switch back to existing tax regime, you will not be able opt for new tax regime unless your business income ceases to exist.

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