One of the biggest dilemmas facing taxpayers post the Union Budget of 2020 is – "should I switch over to the new tax regime, or should I continue with the existing tax regime availing deductions and exemptions? Which choice will help me reduce my overall tax burden?” 

Here, in this guide, we answer this question for salaried individuals who earn an annual income of Rs. 10 lakhs. With detailed explanations, we illustrate how much tax you will pay in both regimes. 

Before we calculate the tax for Rs. 10 lakhs, let's take a look at the income tax slabs under the old and new tax regimes.

Also Read : What Is the Formula to Calculate Income Tax?

Income Tax Slabs for individuals below 60 years – Old and New Tax Regimes

Income Tax Slab

New Tax Regime (For FY 2020 – 21)

Old Tax Regime 

Up to Rs. 2,50,000

NIL

NIL 

Rs. 2,50,001 to Rs. 5,00,000

5% (Tax rebate of Rs. 12,500 available under Section 87A)

5% of total income exceeding Rs. 2,50,000 (Tax rebate of Rs. 12,500 available under Section 87A)

Rs. 5,00,001 to Rs. 7,50,000

Rs. 12,500 + 10% of total income exceeding Rs. 5,00,000

Rs. 12,500 + 20% of total income exceeding Rs. 5,00,000

Rs. 7,50,001 to Rs. 10,00,000

Rs.37,500 + 15% of total income exceeding Rs. 7,50,000

Rs. 10,00,001 to Rs. 12,50,000

Rs. 75,000 + 20% of total income Rs. 10,00,000

Rs. 1,12,500 + 30% of total income exceeding Rs. 10,00,000

Rs. 12,50,001 to Rs. 15,00,000

Rs. 1,25,000 + 25% of total income exceeding Rs. 12,50,000

Above Rs. 15,00,001

Rs. 1,87,500 + 30% of total income exceeding Rs. 15,00,000

 

Income Tax Slab

New

Income

Old

NIL

Up to Rs. 5 lakhs

NIL

10%

Rs. 5 lakhs to Rs. 7.5 lakhs

20%

15%

Rs. 7.5 lakhs to Rs. 10 lakhs

20%

20%

Rs. 10 lakhs to Rs. 12.5 lakhs

30%

25%

Rs. 12.5 lakhs to Rs. 15 lakhs

30%

30%

Rs. 15 lakhs and above

30%

 

So, what’s the income tax you will have to pay with an annual income of Rs. 10 lakhs? 

Income tax for Annual Income of Rs. 10 lakhs

Under the old regime (without claiming any deductions and exemptions)

Under the new regime

Rs. 1,12,500

Rs. 75,000

 

At first glance, it is evident that you can enjoy tax savings of Rs. 37,500 (Rs. 1,12,500 – Rs. 75,000) when you opt for the new tax regime. However, this calculation doesn’t consider the standard deductions and the various exemptions available under the old tax regime. 

Let’s see how the tax pans out when you claim deductions and the exemptions available under the old tax regime. 

Particulars

Tax payable under the old regime

Tax payable under the new regime

Basic salary + daily allowance

Rs. 3,88,600

Rs. 3,88,600

Other taxable allowances 

Rs. 6, 11,400

Rs. 6,11,400

Gross salary

Rs. 10,00,000

Rs. 10,00,000

Standard deduction

Rs. 50,000

NIL

Taxable income under the head Salary

Rs. 9,50,000

Rs. 10,00,000

Deductions under Section 80C

Rs. 1,50,000

NIL

Taxable income under the head Salary

Rs. 8,00,000

Rs. 10,00,000

Income tax

Rs.72,500

Rs. 75,000

*Note that 4% cess is levied on the income tax calculated. 

Which regime should a taxpayer with an annual income of Rs. 10 lakhs choose? 

As you can see from the above table, your income tax is reduced when you opt for the old regime, and by availing the various deductions and exemptions available. 

The common deductions available under the old tax regime include: 

  • Standard deduction of Rs. 50,000 for salaried taxpayers
  • Deductions up to Rs. 1.5 lakhs under Section 80C
  • Deductions for health insurance premiums under Section 80D
  • Deductions on the interest earned from a post office or bank savings account under Section 80TTA
  • Exemptions including HRA (House Rent Allowance), LTA (Leave Travel Allowance), etc. 

A taxpayer with an annual income of Rs. 10 lakhs will pay the same tax in both the new and old regimes when the deductions claimed amount to Rs. 1,87,500. This means if you claim deductions and exemptions of less than Rs. 1,87,500 in a year, then the new tax regime would work better for your income tax slab. On the other hand, if your claimed deductions and exemptions are more than Rs. 1,87,500, then staying with the old tax regime will help you pay lower taxes. 

EndNote 

Calculate Deductions and Exemptions to Decide if you should Opt for the Old or New Tax Regime 

As you can see, the tax payable varies between the new and old tax regimes. However, we cannot point out which is the better option, as it depends on each taxpayer. As a salaried taxpayer with an annual income of Rs. 10 lakhs, make sure to calculate the total deductions and exemptions you claim. This helps you decide whether the old or new tax regime works better for you.