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.
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|
|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.
Additional Reading: What Is the Formula to Calculate Income Tax?
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.
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.