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Understanding the new personal tax regime

By Tensing Rodrigues

Finance Bill 2020 wants the tax payer to make a choice. One can opt to be taxed according to the existing regime or according to the new regime for the financial year 2020- 21, viz. Assessment Year 2021-22. Let us compare for the tax-payers up to age 60 as an example.

   The tax slabs under the existing regime are as follows: Up to Rs 2.5 lakhs- exempt, Rs 2.5 to Rs 5 lakhs- five per cent, Rs 5 to Rs 7.5 lakhs- 20 per cent,  Rs 7.5 to Rs 10 lakhs- 20 per cent, Rs 10 lakhs to Rs 12.5 lakhs- 30 per cent, Rs 12.5 to Rs 15 lakhs- 30 per cent, above Rs 15 lakhs- 30 per cent plus surcharge, cess, etc., where applicable.

   The tax slabs under the new regime are as follows: Upto Rs 2.5 lakhs- exempt, Rs 2.5 to Rs 5 lakhs- five per cent, Rs 5 to Rs 7.5 lakhs- 10 per cent, Rs 7.5 to Rs 10 lakhs- 15 per cent,  Rs 10 to Rs 12.5 lakhs- 20 per cent, Rs 12.5 to Rs 15 lakhs- 25 per cent, above Rs 15 lakhs- 30 per cent plus surcharge, cess, etc., where applicable.

   Before we move to the comparison between the two, let us break down the annual income into monthly income, so that we get a quicker feel of the situation; most of us are salary earners and monthly income communicates better at the gut level. 

  The tax slabs under the existing regime are as follows: Up to Rs 20,833 per month- exempt, Rs 20,834 to Rs 41,667- five per cent, Rs 41,668  to Rs 62,500- 20 per cent, Rs 62,501 to Rs 83,333- 20 per cent, Rs 83,334 to Rs 1,04,167- 30 per cent, Rs 1,04,168 to Rs 1,25,000- 30 per cent, above Rs 1,25,000- 30 per cent; plus surcharge, cess, etc., where applicable.

  The tax slabs under the new regime are as follows: Up to Rs 20,833 per month- exempt; Rs 20,834 to Rs 41,667- five per cent, Rs 41,668 to Rs 62,500- 10 per cent, Rs 62,501 to Rs 83,333- 15 per cent, Rs 83,334 to Rs 1,04,167- 20 per cent, Rs 1,04,168 to Rs 1,25,000- 25 per cent, above Rs 1,25,000- 30 per cent plus surcharge, cess, etc., where applicable.

   So, up to Rs 5 lakhs per annum or Rs 41,667 per month there is no difference in tax rates between the two regimes. So the existing regime is better. Because you can avail of the tax benefits. For the sake of simplicity and generality let us take into account only the benefits under Standard Deduction and under Section 80C, a total deduction of Rs 2 lakh per annum. Additional deductions will increase the benefits of the existing scheme. If your salary is up to Rs 4-5 lakh per annum, or Rs. 37,500 per month, the deductions will reduce it to Rs 2.5 lakh per annum, thereby attracting  nil tax under the existing regime. Under the new regime you will have to pay five per cent tax on Rs two lakh that is Rs 10,000.

If your salary is Rs 5 lakhs per annum or Rs 41,666 per month, you will be paying five per cent tax under both the regimes.  Under the existing regime, the deductions will bring down your taxable income to Rs 50,000 and the tax payable will be Rs 2,500. Under the new regime the taxable income will be Rs 2.5 lakh and the tax payable will be

Rs 12,500.

If your salary is Rs 7.5 lakhs per annum or Rs 62,500 per month you will be paying 20 per cent tax under the existing regime and 10 per cent tax under the new regime.  Under the existing regime, the deductions will bring down your taxable income to Rs three lakh and the tax payable will be Rs 60,000. Under the new regime the taxable income will be Rs five lakh and the tax payable will be Rs. 50,000.

If your salary is Rs 10 lakhs per annum or Rs 83,333 per month, you will be paying 20 per cent tax under the existing regime and 15 per cent tax under the new regime.  Under the existing regime, the deductions will bring down your taxable income to Rs 5.50 lakhs and the tax payable will be Rs 1.1 lakh. Under the new regime the taxable income will be Rs 7.5 lakh and the tax payable will be Rs 1.1 lakh.

If your salary is Rs 12.5 lakhs per annum or Rs 1,04,167 per month, you will be paying 30 per cent tax under the existing regime and 20 per cent tax under the new regime.  Under the existing regime, the deductions will bring down your taxable income to Rs 8 lakhs and the tax payable will be Rs 2,40,000. Under the new regime the taxable income will be Rs. 10,00,000 and the tax payable will be Rs. 2,00,000.

  If your salary is Rs 15 lakhs per annum or Rs 1,25,000 per month, you will be paying 30 per cent tax under the existing regime and 25 per cent tax under the new regime.  Under the existing regime, the deductions will bring down your taxable income to Rs 10.5 lakhs and the tax payable will be Rs 3,15,000. Under the new regime the taxable income will be Rs 12,50,000 and the tax payable will be Rs 3,12,500.

  If your salary is Rs 20 lakhs per annum or Rs 1,66,667 per month, you will be paying 30 per cent tax under the existing regime as well as the new regime.  Under the existing regime, the deductions will bring down your taxable income to Rs 15.5 lakhs and the tax payable will be Rs 4,65,000. Under the new regime the taxable income will be Rs 17,50,000 and the tax payable will be Rs 5,25,000.

Please check the calculations yourselves and check if there are any mistakes; I can then publish the correction for the benefit of the readers.

The author is an investment consultant. Readers can send their comments and queries to investment.ideas.shop@gmail.com

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