New Slab Rate v/s Old Slab Rate under Income Tax

new slab rate
Background for New Tax slab Rate:-

In India, Income Tax is payable by the taxpayers as per the slab Rate decided by the Government of India. In the Budget of 2020, Government of India Introduced new slab rates with the Old slab rates, which means one New slab rate is Introduced by the Government under the Income Tax Act. New Tax Slab is applicable from Financial Year 2020-21 or A.Y. 2021-22.

Old Tax slabs are the same slabs which are in the earlier financial year for more details you can read :- Income Tax Slabs for F.Y. 2019-20 or A.Y. 2020-21

Here, we are understanding:-

  • New Tax Slab Rates or New Tax Regime
  • Difference between New or Old slab Rates,
  • which slabs are more beneficial to the Individual or any other person.
  • FAQ for new tax slab rates.

What is New Slab Rates or New Tax Regime?

In Budget 2020, one announcement that many citizens are eagerly await is changes in slab rates. for that our finance minister has been given lower tax slab rate (New Tax Slabs) benefits with some conditions and this new tax slab rate is optional to every taxpayer.

For the new slab Rates, a new Section 115BAC is inserted in the Income Tax Act, which is applicable to the Individual and HUF only. The most important feature of this section is there are six slabs of rates. But as you know sometimes, we have to lose something in order to gain something. Yes, there is something like that one has to forego exemptions and deductions, which are currently available in the old Tax Regime.

Now, before going to discuss which tax regime is more beneficial to individuals or HUF. first let’s understand what is new slab rates and what exemptions & deductions are allowed or not allowed.

New Slab Rates under Section 115BAC:-
Annual Income New Income Tax Slab Rate
Nil to Rs. 2.5 lakhExempt
Above Rs. 2.5 lakh to Rs. 5 lakh5%
Above Rs. 5 lakh to Rs. 7.5 lakh 10% 
Above Rs. 7.5 lakh to Rs. 10 lakh15% 
Above Rs. 10 lakh to Rs. 12.5 lakh20% 
Above Rs. 12.5 lakh to Rs. 15 lakh25% 
Above Rs. 15 lakh30%
New Tax Slab Rate

following are the exemption/ deductions which are not entitled to Individual and HUFs:-

  1. Additional depreciation under section 32(1)(iia)
  2. Interest under section 24b.
  3. Allowances paid under section 10(5), 10(13A), 10(14), 10(17), 10(32),
  4. Deduction for SEZ unit under section 10AA.
  5. Deductions under Section 32AD/ 33AB/ 33ABA,
  6. Various Deductions under Section 35/ 35AD/ 35CCC.
  7. Deduction from family pension under Section 57(iia).
  8. standard deduction of Rs. 50,000/-, the deduction for entertainment allowance and employment/professional Tax as contained in section 16.
  9. Any deduction under chapter VIA ( i.e. section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GGA, 80GGC, 80IA, 80IAB, 80IAC, 80IB, 80IBA, etc.
  10. Assessee can not claim loss from any earlier Assessment year due to the above-mentioned deduction or from the House property.

Deductions which are still allowed under section 115BAC:-

Section 115BAC is not applicable when assessee claims deductions and exemptions. however there are some deductions, benefits of which, still available to a Assesse, given below:-

  1. Deduction under section 80CCD(2) for the employer’s contribution towards the pension scheme.
  2. Deduction under section 80JJAA allows deduction in respect of new employees.
  3. Transport Allowance for the employees who are physically disabled.
  4. Conveyance Allowance for the performance of Office duties.
  5. Traveling Allowances are given for the purpose to meet tour/travel/transfer.
  6. Daily Allowances which employees have to spent to work in the different workplace.
  7. Rebate u/s 87A is available even if the assessee opts for section 115BAC.

Important Points need to consider before opting New Tax Slab Rate:-

As discussed earlier, new tax slab rates are optional for each assessment year, which means Assessee has the option to choose between new tax slab rates or the old slab rate each year, but only in the case of No business Income .

If an Individual or HUF having Business Income, the option once exercised (new slab) cannot be withdrawn and would be applicable for all subsequent assessment years. If in any future assessment year assessee want to withdraw from that option then, he can withdraw but shall never be eligible to exercise that option again under this section. He can only be exercised the new option when he has ceased to any business Income.

  • If Assessee has income other than business then Assessee has always an option between the New or Old slab.
  • If Assessee has Business Income then only have one option to exercise that cannot be withdrawn.

Difference between New or Old slab Rates?

As we have already discussed above the two slab rates have been define by Government, now here we discuss with an example what is exactly the difference between these two slab rates.

Example 1:-

Mr. X earns a salary of 60,000/- p.m. and an Interest Income of Rs. 30,000/- during the year and he makes an investment in LIC of Rs. 1,50,000/- calculate the tax payable of Mr. X during the year under New Tax Slab or Old Tax Slab?

Old Slab RateNew Slab Rate
Salary Income = 7,20,000/-Salary Income = 7,20,000/-
Less:- Standard Deduction = 50,000/- Less:- Standard Deduction = nil
Net Salary Income = 6,70,000/- Net Salary Income = 7,20,000/-
Add:- Any other Income = 30,000/-Add:- Any other Income = 30,000/-
Gross Total Income = 7,00,000/- Gross Total Income = 7,50,000/-
Less:- Deduction u/s 80C = 1,50,000/-Less:- Deduction u/s 80C = nil
Total Taxable Income = 5,50,000/-Total Taxable Income = 7,50,000/-
Income Tax = 22,500/-Income Tax = 37,500/-
Less:- Rebate u/s 87A = nilLess:- Rebate u/s 87A = nil.
Tax Payable = 22,500/-Tax Payable = 37,500/-

Example 2:-

Mr. X earns a salary of 60,000/- p.m. and an Interest Income of Rs. 30,000/- during the year and he Does not make any investment in LIC etc. for 80C deduction. calculate the tax payable of Mr. X during the year under New Tax Slab or Old Tax Slab?

Old Slab RateNew Slab Rate
Salary Income = 7,20,000/-Salary Income = 7,20,000/-
Less:- Standard Deduction = 50,000/- Less:- Standard Deduction = nil
Net Salary Income = 6,70,000/- Net Salary Income = 7,20,000/-
Add:- Any other Income = 30,000/-Add:- Any other Income = 30,000/-
Gross Total Income = 7,00,000/- Gross Total Income = 7,50,000/-
Less:- Deduction u/s 80C = nilLess:- Deduction u/s 80C = nil
Total Taxable Income = 7,00,000/-Total Taxable Income = 7,50,000/-
Income Tax = 52,500/-Income Tax = 27,500/-
Less:- Rebate u/s 87A = nilLess:- Rebate u/s 87A = nil.
Tax Payable = 52,500/-Tax Payable = 37,500/-

Which Tax Regime is more beneficial New or Old?

Conclusion:- for the above two examples we can say that calculation under both the tax regime is needed every time when I.T. return is required to file because in many situations Tax under the old rate is beneficial and in many times tax under new rate is beneficial.

In the above examples, if we have taken 80C deductions then the old tax rate is beneficial and if we do not take an 80C Investment then tax under the new slab rate is beneficial. so, if Assessee has no investment under 80C then he should go for a new tax slab rate for lower Tax otherwise he should stay in the old tax regime.

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