Is the freshly-revamped new tax regime worth your while? The answer depends on your income level and the total deductions you claim.
Not surprisingly, those in the highest tax bracket of over Rs 5 crore will stand to benefit the most, thanks to reduction in effective tax rate from 42.74 percent to 39 percent under the new tax regime, at par with those with incomes of between Rs 2-5 crore.
So, if your salary is Rs 5.5 crore, you will save close to Rs 20.2 lakh every year if you shift to the new, minimal exemptions tax regime, according to EY India's post-Budget calculations. This is assuming tax deductions of Rs 4.25 lakh under the old tax regime, including standard deduction of Rs 50,000 available under both the regimes.
Those in middle-income tax brackets who claim multiple deductions under section 80C, 80D amounting to at least Rs 4.25 lakh would do well to stick to the old regime.
For instance, if your gross total income is Rs 11 lakh, you will end up paying Rs 20,800 more if you switch to the new regime. This is because your total deductions of Rs 4.25 lakh will bring down the taxable income under the old regime.
Overall, the balance tilts in favour of the new tax regime, if you claim fewer tax deductions. For instance, if you avail of total exemptions and deductions of only Rs 2 lakh, the new tax regime could work better for you, as per Deloitte India calculations.
If your income is Rs 16 lakh,Rs 60 lakh or Rs 2.2 crore, you could choose either of the regimes without any impact on your tax outgo, according to EY India. However, here, the new regime might be beneficial due to the lower compliance burden it demands. However, if you were to claim even higher deductions, it could work in favour of the old tax regime.
The new regime, introduced in Budget 2020, offers minimal exemptions, but lower tax rates compared to the older tax regime, which continues to co-exist.
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