New tax rates- are they actually lower?

During the presentation of the Fiscal Budget, the Finance Minister announced revised slab rates of taxation for individuals, which are lower than the prevailing rates. However, there is a certain catch to it. Under the new rates, the assessee has to forego certain exemptions and deductions while computing the taxable income. Hence they might actually result in higher tax liability than the current regime. A key positive is that such rates are optional and the assessee can continue to pay tax at existing rates and enjoy all the exemptions and deductions.

Slab New Old
0 – 2,50,0000 Exempt Exempt
2,50,000 – 5,00,000 5% 5%
5,00,000 – 7,50,000 10% 20%
7,50,000 – 10,00,000 15% 20%
10,00,000 – 12,50,000 20% 30%
12,50,000 – 15,00,000 25% 30%
Above 15,00,000 30% 30%

The deductions and exemptions which the assessee would have to forego have been listed as below (non-exhaustive)-

  • Section 10(5)- Leave Travel Concession
  • Section 10(13A)- HRA allowance
  • Section 10(14)- Special Allowance
  • Section 10(17)- provided to the members of the Parliament.
  • Section 10(32)- Exemption in case of clubbing of income
  • Section 10AA- Exemption to units established in SEZs.
  • Section 16- Deduction from income u/h Salary
  • Section 24(b)- Interest on housing loans.
  • Chapter VI-A (except 80CCD and 80JJAA)

Calculations for various incomes under both regimes have been presented below.

We are working with the following assumptions-

  • All the income is under salary head.
  • The full amount of deduction/exemption is available in Interest on housing loan, 80C, 80CCD and 80TTA. Only INR 25,000 deduction in 80D.

salary1

 

salary2

 

Salary 3

 

salary 4

 

salary 5

As can be seen, under the given assumptions, the old regime seems to be better suited than the new regime. So salaried individuals are unlikely to adopt the new rates as it will result in additional liability to them.

Please do respond here or mail me at ssinghal22995@gmail.com if you have any queries or suggestions regarding the same.

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