1/27/2021 Income tax regime: New, or old: Which tax regime makes the most sense for you?

tax regime makes the most sense for you? | India Business News - Times of India

New, or old: Which tax regime makes the most sense for you?

Updated: Jan 27, 2021, 17:56 IST

(Representative image)

NEW DELHI: The Union Budget is around the corner and given the tough year it has been due to the
pandemic, the expectations of the salaried taxpayers are high.

The year 2020 was challenging for the salaried class. From salary cuts to coping with additional expenses
due to remote working and inability to claim certain exemptions like fuel reimbursements, etc, the
salaried class braved it all. Given this, the taxpayers are expecting relief in the form of increase in
exemptions/deductions from the government in the upcoming Budget.

Last year’s Budget introduced the new concessional tax regime that offers an individual the option to
choose lower tax rates in lieu of forgoing certain tax exemptions and deductions. Some of these benefits
include standard deduction, exemption towards house rent allowance, leave travel allowance, house
property loss, and deduction towards provident fund contributions and life insurance premiums.

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The new regime, effective from financial year 2020-21, prescribes tax rates ranging from 5% to 30%
with the highest tax rate applicable for income above Rs 15 lakh. This option is beneficial in those cases
where an individual has fewer exemptions and deductions to be claimed. Individuals with higher income
levels and tax-saving investments qualifying for deductions or exemptions may not find the new regime
attractive.

Evaluation of certain factors will be important for individual taxpayers before deciding whether to
continue with the old tax regime or opt for the new tax regime.

Individuals with limited deductions or exemptions would have the advantage of more tax savings by
opting for the new tax regime. The level of tax savings would depend on the income levels and every
individual would have to undertake a fact-specific evaluation keeping in mind her/his investments.

While the new tax regime is beneficial for a select segment of individual taxpayers, there is a need to
address the expectations of the other set of individual taxpayers who prefer to invest for securing their
future and would like to avail the deductions linked to investments.

The pandemic has resulted in a financial burden on many and, hence, the taxpayers are looking for
relaxations like extension of benefit to non-senior citizens (under the current law, senior citizens are
allowed deduction of up to Rs 50,000) for medical expenditure under Section 80D, increasing the cap of
interest on housing loan, extension of additional benefits available for first-time homebuyers, extending
the benefit of the newly introduced LTC cash voucher to the next financial year, additional investment

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1/27/2021 Income tax regime: New, or old: Which tax regime makes the most sense for you? | India Business News - Times of India

opportunities for availing tax benefits through investment in infrastructure bonds etc. Given the varied
profile of taxpayers, there exists a case for coexistence of both the regimes going forward.
TOP COMMENT
Government made lot of noise about these changes however actual benefits for tax payers is nothing. Whether it is current Government or past governments, each one used
sincere tax payers for years , ...Read More

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- Amarpal S Chadha

(The author is Tax Partner, EY India. Shanmuga Prasad, Senior Tax Professional with EY, has also
contributed to this article. Views are personal.)

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