Income Tax Return: Settling The Old vs New Tax Regime
FM Minister Ms. Nirmala Sitharaman introduced the Union Budget on 1st February 2020 with the aim to boost the Indian economy.
New vs. Old tax rates for Personal tax
If an individual wishes to avail the new tax rates as announced by Budget 2020, he/ she will not be eligible to claim the following tax benefits:
6) Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);
The tax rates have been reduced but with the new tax rates one cannot avail around 70 tax exemptions and deductions out of more than 100 which were earlier can be availed. So,basically, one has to forego all of these. However, it depends upon person to person which tax rates are beneficial to go ahead with.
Let us understand this with the help of example;
Salary 6 lakh: The one can invest 50 K in 80C, mediclaim, and others to get in 5 lakh range and hence have to pay no income tax. (50K will be deducted in Standard Deduction)
Salary 7 lakh: Either pay 32.5 K with new slab or invest 1.5 lakh under 80C and others to save the tax (50K will be deducted in Standard Deduction)
Salary 8 lakh: Either pay 40 K with new slab or invest 1.5 lakh under 80C and others, 50K in NPS to save the tax, (50K will be deducted in Standard Deduction). Still have to pay 22.5K for tax
Salary 9 lakh: Either pay 60 K with new slab or invest 1.5 lakh under 80C and others, 50K in NPS, (50K will be deducted in Standard Deduction), and still pay 42.5 K
Above calculations suggest that old tax rates with exemptions and deductions is a better option for those individuals having higher income bracket
If someone has a home loan, education loan, mediclaim for family or parents, certain other deductions will be available in the later tax slab. Hence, from this year now one has to calculate their total income as well as deductions and have to decide whether they will invest money for a lock-in period or can get better returns after paying income tax through new slab.
It is important to note that post the announcement of new tax rates, Individual will have more cash in hand at his/her disposal at the end of every month or year which was primarily the purpose of the government to boost the consumption thereby taking India into the $5trillion GDP goal.
Benefits of new tax rates
Originally published at https://www.myfindoc.com.
