All you Need to Know Old Tax Slab vs New Tax Slab for FY 2020-21
February, 17th 2021
The Finance Minister, Nirmala Sitharaman, presented the Union Budget, 2020, and introduced a new income tax slab.
The new tax regime was introduced for regular individuals, senior citizens, and HUF, wherein they can pay taxes at lower income tax slab rates.
New Income Tax Slab for Senior Citizens in 2020-21
The Taxpayers above 60 years of age and less than 80 years of age are considered as Senior Citizens as per the Income Tax Act, 1961.
Let’s check the income tax slab for senior citizens as per the new and old tax regimes.
Important Things to Remember while opting New Tax Regime
The new tax regime provides the taxpayers with an option to choose either to pay income tax at lower rates as per New Tax regime on the condition that they forgo certain permissible exemptions and deductions available under income tax or to continue to pay taxes under the existing tax rates.
The assessee can avail rebates and exemptions by staying in the old regime and paying tax at the existing higher rate. The optional tax regime offered under the new budget is a mixed bag of both good and bad. While it is beneficial for individuals whose income falls under the slab up to Rs.15 Lakh, it may not go in your favor if your income falls above the bracket of Rs.15 Lakh.
The rationale for the same is that if you opt for a new tax regime, you have to forgo 70 exemptions, including house rent allowance, medical insurance premium, and travel allowance.
Old Tax regime V/s New Tax regime, which is better?
The New Tax Regime has proposed lower income-tax rates, for income segments up to Rs 15 lakh. But you need to remember that the proposed lower tax rates will be applicable only if you are willing to give up exemptions and deductions available under various provisions of the Income-tax Act, 1961.
This means that when you choose the New Tax Regime, you will have to forgo some exemptions such as Leave Travel Allowance (LTA), House Rent Allowance (HRA), etc. and deductions available under chapter VI A of the Act that grant deductions under Section 80 (such as 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG, 80GGA, 80GGC, etc).
For example, if Mr.X is less than 60 years old, with a gross annual income of Rs.15,00,000. If the deductions and exemptions claimed by this person amount to a total of Rs.2,50,000 a year, the taxable income under the old regime becomes Rs.12,50,000 and the tax liability for Ra.12,50,000 will be Rs.1,95,000.
Under the new regime, without the benefit of these deductions and exemptions, the person’s taxable income will be Rs.15,00,000. But thanks to lower tax rates, the tax liability will be the same Rs.1,95,000.
Thus, at this break-even level of tax benefits, it makes no difference whether the person stays in the old regime or shifts to the new one.
Now, if the person’s tax breaks increase to Rs.3,00,000 then his taxable income under the old regime will come down to Rs.12,00,000 and the tax liability will be Rs.1,79,400, while under the new regime, the tax liability will be Rs.1,95,000. So, it will be better to continue with the old regime.
On the other hand, if the person’s tax breaks are only Rs.2,00,000, their taxable income under the old regime will be Rs.13,00,000 and the tax liability will be Rs.2,10,600. This is higher than the tax liability of Rs.1,95,000 lakh under the new regime, so it will be worthwhile to shift to the new regime.