From financial year (FY) 2020-21 and 2021-22, individual taxpayers can choose between two different tax regimes – the existing or old tax regime and the new tax slab, a concessional one. The concessions will include HRA, LTA for travel expenses for business trips, and certain other deductions on account of various Sections available under the Income Tax Act of India, 1961.
While those opting for the new regime will lose most of the approximately 70 tax exemptions and deductions that are available under the old regime, income tax slabs remain practically identical (with lower incomes typically paying less). Moreover, depending on your circumstances, there might be more benefits in some cases.
According to the Income Tax changes for FY 2020-21, senior citizens have been provided with income tax benefits. Here is a look at what has been changed in the new income tax slabs and rates this year. The income tax changes for FY 2021-22 are being put up by the government in such a way that the filing of returns will become uber-easy.
Income Tax Slab Rate According to The New Tax Regime Vs The Old Regime
| Income Tax Slab | Tax Rates as per New Regime | Tax Rates as per Old Regime |
| ₹0 – ₹2,50,000 | Nil | Nil |
| ₹2,50,001 – ₹ 5,00,000 | 5% | 5% |
| ₹5,00,001 – ₹ 7,50,000 | ₹12500 + 10% of total income exceeding ₹5,00,000 | ₹12500 + 20% of total income exceeding ₹5,00,000 |
| ₹7,50,001 – ₹ 10,00,000 | ₹37500 + 15% of total income exceeding ₹7,50,000 | ₹62500 + 20% of total income exceeding ₹7,50,000 |
| ₹10,00,001 – ₹12,50,000 | ₹75000 + 20% of total income exceeding ₹10,00,000 | ₹112500 + 30% of total income exceeding ₹10,00,000 |
| ₹12,50,001 – ₹15,00,000 | ₹125000 + 25% of total income exceeding ₹12,50,000 | ₹187500 + 30% of total income exceeding ₹12,50,000 |
| Above ₹ 15,00,000 | ₹187500 + 30% of total income exceeding ₹15,00,000 | ₹262500 + 30% of total income exceeding ₹15,00,000 |
Tax rates for the latest tax system apply to individuals as well, including individual and non-profit corporations up to age 60, older seniors over sixty years of age up to eighty years old, as well as senior adults ages 80 or higher.
Moreover, people with a taxable income of less than or equal to Rs. 5 lakhs will be eligible for a tax reduction under section 87A i.e., tax debt may not be considered by the person in both – New and old/existing tax methods.
If you belong to the Non-Resident Indian category, the income tax limit is now Rs 2.5 lakhs, instead of earlier being Rs 2.4 lakhs. However, since education and healthcare costs are never exactly static, additional amounts for education and healthcare will be added to your taxable income in all cases.
What Are Your Exemption Options in The New Regime?
If you are earning less than INR 7,50,000 per fiscal year and have invested over INR 1,25,000 in the previous financial year, opting for the Old Tax Regime will allow you to claim tax deductions. If you earn less but have still invested INR 1,25,000 or more in your business that can be claimed as an expense that isn’t private such as ‘car & travel’ expenditure, then look into New Tax Regime options.
NRIs and Hindu Undivided Families (HUFs) are not eligible for tax rebates related to Section 87A. A 4 per cent income tax surcharge is applicable in addition to the cess at the rate of 4 per cent if your income exceeds 50 lakhs. The additional surcharge that may apply is 2 per cent or 4 per cent based on your total income amount, which must be less than Rs 1 crore and Rs 10 lakhs respectively.
How To Save Tax Through Insurance Schemes?
As stated earlier, you have the liberty to choose your preferred tax slab based on your requirements. However, once you make a decision, there’s just no way back. With that said, if you opt for the old tax regime, you may be eligible for certain tax benefits through various tax saving plans such as, such as:
Savings Under Section 80C
Life insurance policies paid out directly to the policyholder come with many tax benefits such as being eligible for deduction up to 1.5 lakhs under Section 80C of the IT Act, 1961. Under this section, you’ll also find other tax-free life insurance schemes available like Public Provident Fund (PPF), National Saving Certificates (NSC), Sukanya Samriddhi, and even a contribution towards your child’s tuition fees at some universities in India.
Deductions Under Section 80D
Under Section 80D, your premium payments to avail health insurance of parents are tax-deductible to a maximum of 25,000. Also, if you pay the senior citizen premiums on your health policies to help you save taxes, then your taxable income will be further reduced by 30,000. You are also eligible for a deduction of up to 5,000 on preventive healthcare checkups.
If you decide to opt-in for the new tax regime, then you will not be able to claim certain deductions. For example, you cannot claim deductions that are common under the old tax regime. However, your tax liability will be calculated on lower rates based on a cent per cent of your total income or profits.
Despite getting a Rs 1.5 lakh deduction under Section 80C in the past, an individual is better off in the new tax regime. However, if one is eligible for any other exemptions or tax benefits such as the medical insurance exemption, their current and previous years’ tax liabilities could be less than what they would have been under the old tax regime. Therefore, it is important to weigh your previous and current-year obligations before purchasing any major assets as opposed to fixed assets.
The Takeaway
Whether you use these rules as a guide to create your strategy or to do nothing and pay the default, they are here to help you deal with the new, somewhat troubling changes made to tax law in India. The new tax slab is sure to shake up how we do saving and spending, but understanding it beforehand will go a long way towards ensuring that your savings match your goals and dreams.
Bhupendra Singh Chundawat is a seasoned technology journalist with over 22 years of experience in the media industry. He specializes in covering the global technology landscape, with a deep focus on manufacturing trends and the geopolitical impact on tech companies. Currently serving as the Editor at Udaipur Kiran, his insights are shaped by decades of hands-on reporting and editorial leadership in the fast-evolving world of technology.
