Old Tax Scheme vs New Tax Scheme

Old Tax Scheme vs New Tax Scheme

The Union Budget 2020 introduced new Tax Scheme for taxpayers. Lot of people are confused which scheme to choose? Which scheme is beneficial for them? Hence Team Taxofile has tried to decode the New Tax scheme. Hope it will help you to take informed decision.

· To whom this scheme is applicable?

Individuals and HUF’s having income other than business or profession has a right to choose between old scheme vs new scheme.

· What is main difference between these two tax schemes?

In new tax scheme the tax rates have been reduced significantly. But if you avail the benefit of lower slab rates then you must forgo the benefits of various income tax exemptions and deductions.

· How to avail new Scheme?

CBDT has notified Form 10 – IE. Individual is required to fill and submit this form at the time of filing income tax return (ITR) if he/she opts for the new tax regime for a particular financial year.

· Tax Rates under old scheme and new scheme?

Income Tax Slab Rates

Specified Exemptions & Deductions not available under New Regime – Illustrative list

Deductions not allowed under New Tax Scheme for Salaried Class
Deductions not allowed under New Tax Scheme for Business Class

Breakeven Point analysis

New Regime is beneficial if specified deductions/allowances are less than the amount mentioned in below table whereas old scheme is beneficial if specified deduction is more.


Income

(Rs)
   
Break Even (Deduction   Amount)   
   
5,00,000   
   
No Tax Payable Due to Rebate U/s 87 A   
   
6,00,000   
   
50,000   
   
7,00,000   
   
1,00,000   
   
8,00,000   
   
1,37,500   
   
9,00,000   
   
1,62,500   
   
10,00,000   
   
1,87,500   
   
11,00,000   
   
1,87,500   
   
12,00,000   
   
1,91,670   
   
13,00,000   
   
2,16,665   
   
14,00,000   
   
2,33,330   
   
15,00,000   
   
2,50,000   

Allowability of losses – Under New Regime

·       Loss from earlier assessment years shall not be allowed if such loss or depreciation is attributable to specified deductions.

·       Losses under the head House Property pertaining to the current year (Including loss from Let out Property), shall not be allowed to be set-off against any other head of income.

·       Depreciation is allowed. But additional depreciation under section 32(1)(iia) is not allowed.

Exercising of Option under New Regime

·       An individual having salaried income and no business income has the option to choose between the old and new tax regimes every year i.e., he/she can switch regimes from year to year.

·       Individuals having business income are not eligible to choose between the new and old tax regime every year. Once they have opted for the new tax regime, they only have a one-time option of switching back to the old tax regime in their lifetime.

What about Section 87 A rebate?

· 87 A rebate means Individuals having Income up to Rs 5 lacs will be eligible for tax rebate Rs 12500 under both schemes. It is available under both New tax regime as well as Old Tax regime.

So, what is the Conclusion?

·       Whether the new scheme works for you or the old one will depend on composition of your gross total income and deductions available.

One having moderate income and having more eligible deductions can continue with old tax scheme.

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