Old and New Tax regime for the individuals under income tax in India

Old and New Tax regime for the individuals under income tax in India
  • Reading time:2 mins read
  • Post last modified:December 30, 2020
  • Post category:Income Tax

In the new budget for the fiscal year 2020-21, Finance Minister introduced the new income tax rate for tax-payers in India. Individuals and Hindu Unified Families (HUF) have the option to pay tax as per the new regime

In this new regime, taxpayers has an OPTION to choose either :

i) To pay income tax at lower rates as per New Tax regime on the condition that they forgo certain permissible exemptions and deductions available under income tax.

ii) To continue to pay taxes under the existing tax rates. The assessee can avail rebates and exemptions by staying in the old regime and paying tax at the existing higher rate.

In the old tax regime, the taxpayers benefitted from several tax exemptions and deductions under section 80C and house rent allowance, which is not possible on switching to the new system. Because the new tax policy does not offer exemptions like the old tax regime.

The new tax regime does not allow the taxpayer to avail certain specified deductions. Some of them are:-

i) Education loan interest

ii) Section 80C investments

iii) Housing loan interest

iv) House rent allowance

v) Leave travel allowance

vi) Standard deduction

vii) Medical insurance premium

viii) Savings bank interest

ix) Allowance for clubbing of income of minor

x) Children education allowance

The new tax regime does allow the taxpayer to avail certain exemptions. Some of them are:-

i) Standard deduction on rent

ii) VRS proceeds

iii) Agricultural income

iv) Retrenchment compensation

v) Income from life insurance

The old tax regime does allow the taxpayer to avail certain specified deductions and exemptions. Some of them are:-

i) Standard deduction

ii) House rent allowance

iii) Section 80C investments

iv) Housing loan interest

v) Medical insurance premium

vi) Education loan interest Leave travel allowance

vii) Savings bank interest

viii) Deduction under section 80C, 80CCC, 80CCD

80G, 80GG, 80GGA, 80GGC, 80E, 80EE, 80EEA, 80EEB

80D, 80DD, 80DD, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IB

The advantages and disadvantages of the new tax regime are as follows:-

i) It provides for concessional tax rates compaire to the old regime

ii) The documentation required is lesser

iii) Tax filing is simpler

iv) The new tax regime does not allow the taxpayer to avail certain specified deductions and exemptions

So, if taxpayers want to opt for the new tax regime, they should evaluate both the regimes.

Note: This Post was last updated on December 30, 2020

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Sunita

Founder & Director | COO & CHRO at eTaxFinance | Content Writer at eTaxFinance Blog | Department Head for Intellectual Property & Startup Team | Head-Corporate Strategy and Planning