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New Income Tax Regime: Income tax is an important part of the life of every earning person in the country. Salaried people get their salary only when income tax is deducted, so it is very important for every person to know how much income tax he will have to pay, or which income tax system i.e. which system will benefit him.
It is worth noting that while presenting the general budget for the year 2020 in the Parliament, Finance Minister Nirmala Sitharaman had announced the new tax system under section 115BAC of the Income Tax Act. Under the new tax system, changes were made in the income tax slabs and rates were also reduced to benefit taxpayers, but all kinds of exemptions available under various sections of the Income Tax Act were completely abolished. At the same time, to provide relief to salaried people who have the habit of saving, the old tax system was retained, but the tax rates for them were also kept the same.
In the new tax system, people having income less than Rs 7 lakh are completely exempted from income tax, whereas in the old tax system, this exemption was available only to those whose taxable income was less than Rs 5 lakh. In the new tax system, there is no tax on income up to the first Rs 3 lakh, 5% tax is levied on the next 3 lakh rupees i.e. from Rs 3 lakh to Rs 6 lakh, 10% tax is levied on income from Rs 6 to 9 lakh, 15% tax is levied on income from Rs 9 to 12 lakh and 20% tax is levied on income from Rs 12 to 15 lakh. 30% tax is levied on income more than Rs 15 lakh.
If we look carefully, the new tax system is very beneficial for all those people who do not invest in savings schemes (PPF, NSC, life insurance policies, etc.), or who have not built a house by taking a loan from the bank, or who do not live in a rented house, or who do not get tax exemption on the House Rent Allowance (HRA rebate) received in the salary.
How much income will a person earning how much income get in income tax…
Now to understand how much a person earning how much can benefit by adopting the new tax system, take a close look at the chart below these lines. Here we have given examples of 7 salaried people with different total incomes, who earn ₹7,50,000, ₹10,00,000, ₹12,50,000, ₹15,00,000, ₹20,00,000, ₹25,00,000 and ₹30,00,000 every year respectively. The second column in this chart shows the benefit of standard deduction, which is only ₹50,000 in the new and old tax system. The third column of the chart mentions the estimated amount to be deposited in the provident fund from the salary of all the seven taxpayers, and this amount can be exempted only in the old tax system. The next column of the chart mentions the taxable income as per the old tax regime, and the column after that shows the income tax payable under the old tax regime, including 4 per cent cess. The chart then shows the taxable income under the new tax regime, in which PF is not deducted, and only standard deduction is allowed as per the rules. The next column of the chart shows the income tax payable for all the seven taxpayers, and then the last column shows how much benefit all the seven taxpayers will get on switching to the new tax regime compared to the old tax regime.
If annual income is ₹7.5 lakh…
The first person shown in the chart will be given only the benefit of standard deduction in the new tax system, due to which his taxable income will be considered as ₹ 7,00,000, and under the new rules he will get exemption under section 87A of the Income Tax Act, and he will not have to pay any income tax, i.e. this person will get a benefit of ₹ 49,140 as compared to the income tax payable in the old tax system.
If annual income is ₹10 lakh…
In the old tax system, a person earning ₹ 10 lakh every year would have to pay ₹ 99,320 as income tax due to standard deduction and PF deposits, but in the new tax system, this person will have to pay only ₹ 54,600 income tax on the same income, that is, he will get a benefit of ₹ 44,720.
If the annual income is Rs 12.5 lakh…
A person whose annual income is ₹12,50,000 will have to pay ₹1,65,750 income tax under the old tax system, while the same person will have to pay only ₹93,600 under the new tax system, that is, this person will get a benefit of ₹72,150.
Those with an annual income of Rs 15 lakh will get the most benefit…
A person having ₹15 lakh annual income will have to pay only ₹1,45,600 under the new tax system, whereas in the old tax system the same person would have to pay ₹2,41,020 income tax on the same income, thus, that person will get a benefit of ₹95,420.
If the annual income is Rs 20 lakh…
If a person earns Rs 20 lakh annually and remains in the old tax system, he will have to pay Rs 3,91,560 as income tax, but if the same person adopts the new tax system, the income tax payable by him will be Rs 2,96,400, that is, this person will also save Rs 95,160 in a year.
If you earn Rs 25 lakh…
A person whose annual income is ₹25 lakh will have to pay ₹5,42,100 income tax if he remains in the old tax system, but the same person will have to pay only ₹4,52,400 income tax in the new tax system, so here too, a benefit of ₹89,700 is certain on adopting the new tax system.
If the annual income is Rs 30 lakh…
The last person in the chart, who is earning ₹30,00,000 annually, would have a taxable income of ₹28,45,000 in the old tax system, and would have to pay ₹6,92,640 as income tax, while the same person would get a benefit of ₹84,240 if he comes under the new tax system, and would have to pay only ₹6,08,400 as income tax.