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
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. 

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. 

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.