Budget 2020 offers individuals the choice of paying tax under the new regime of lower income tax rates by letting go the tax exemptions/deductions or continue to pay tax under the existing income tax laws by claiming the applicable exemptions and deductions. Essentially, the more exemptions an individual claims, the less likely he/she is to benefit from the new optional tax regime however which regime is beneficial will vary on a case to case basis. Calculations show that salaried individuals claiming a large number of exemptions (80C, 80D, interest on housing loan, HRA and LTA etc.) are likely to be better off in the existing income tax regime.

“The higher the exemptions an individual was claiming, the less likely he/she is to benefit under the new personal tax regime,” said Shalini Jain, tax partner, EY India.

An individual with gross salary up to Rs 12.5 lakh claiming only deductions under section 80C (Rs 1.5 lakh), 80D (Rs 25,000) and standard deduction of Rs 50,000 will pay more tax under the new personal income tax regime. Lower the gross salary, higher the additional tax payable by individuals in the new tax regime claiming only these three exemptions (upto the amounts mentioned) in the old tax regime. Individuals claiming little as tax breaks are more likely to gain from the new regime (Refer to Case I). Actual loss or gain for taxpayers opting for new tax regime is to be calculated individually because the amount of exemptions/deductions claimed by them will vary.

The tables below show the amount of tax saved or extra tax payable for a salaried individual at different salary levels under the existing tax regime and the new proposed tax regime.

Case I—Salaried individual not claiming any exemptions or deductions
Assuming no tax deductions or exemption are claimed in the existing personal tax regime, the individual with gross salary of Rs 7.5 lakh would save tax of Rs 15,600 if he/she opts for the new personal tax regime. At Rs 10 lakh, the individual would save Rs 28,600 in tax and at Rs 12.5 lakh he/she would save Rs 49,400. An individual earning Rs 15 lakh or above will save Rs 62,400 in tax.

“If the salaried individual is claiming deductions under section 80C, 80D (medical premium), HRA exemption, LTA exemption and deduction of interest paid on housing loan taken for self occupied property up to permissible limits, he is is likely to be better off in the existing personal tax regime," said Shalini Jain, tax partner, EY India.

Case II— Salaried individual claiming most common deduction/exemptions, i.e. under sections 80C, 80D and standard deduction
Assuming the individual is claiming these tax breaks: standard deduction of Rs 50,000, deduction of Rs 1.5 lakh under section 80C and Rs 25,000 under section 80D for medical premium. In this case if the individual opts for the new personal tax regime then at gross salary of Rs 7.5 lakh the person will have to pay Rs 20,800 extra tax, at a gross salary of Rs 10 lakh the additional tax payable will be Rs 7,800 and at a gross salary of Rs 12.5 lakh the additional tax payable will be Rs 5,200. However, at a gross salary level of Rs 15 lakh or above the individual will save tax of Rs 7800.

Therefore, a high earner claiming only these deductions is likely to save tax under the new regime but lower income earners up to gross salary of Rs 12.5 lakh will end up paying more tax.

Case III— Salaried individual claiming more exemptions/deduction, i.e. under sections 80C, 80D, standard deduction and HRA exemption
Assuming the individual is claiming these tax breaks: standard deduction of Rs 50,000, deduction of Rs 1.5 lakh under section 80C and Rs 25,000 under section 80D for medical premium and HRA exemption (varied as per salary income level). In this case if the individual opts for the new personal tax regime then at gross salary of Rs 7.5 lakh (claiming HRA exemption of INR 150,000) the person will have to pay Rs 39,000 extra tax, at a gross salary of Rs 10 lakh (claiming HRA exemption of INR 200,000) the additional tax payable will be Rs 49,400, at a gross salary of Rs 12.5 lakh (claiming HRA exemption of INR 250,000) the additional tax payable will be Rs 59,800, at a gross salary of Rs 15 lakh (claiming HRA exemption of INR 300,000) the additional tax payable will be Rs 83,200 and at a gross salary level of Rs 20 lakh (claiming HRA .exemption of INR 400,000) the additional tax payable will be Rs 117,000.

To see if the new regime is beneficial, each individual will have to make their own calculations. It will depend the level of deductions and exemptions you are claiming at the moment.