New Income Tax Regime: Who would benefit by shifting to new regime? Case study

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Published: February 3, 2020 8:14 PM

Once shifted to the new income tax regime, you can't come back to the old regime and lose the opportunity to invest to avail deductions and save taxes.

old income tax regime, new income tax regime, Budget 2020, income tax, tax benefits, deductions u/s 80C, 80D benefit, interest on savings bank account, interest on bank FD, income tax rate, income tax slabsMany tax benefits are not available under the new income tax regime.

Jayanti Mukherjee (name changed), a 72-year-old widow, gets family pension of around Rs 59,000 per month. She earns interest about Rs 10,000 on saving bank account. So, her current gross annual income is Rs 7,18,000 on which she gets deduction u/s 57(iia) of Rs 15,000 available for family pensioners and deduction of Rs 10,000 u/s 80TTB on interest on savings bank account.

So, her taxable salary under old income tax regime is Rs 6,93,000 and her exemption limit is Rs 3 lakh.

If she moves to new tax regime, she will not get Rs 15,000 deduction u/s 57 (iia) and deduction of Rs 10,000 u/s 80TTB. So, her taxable income will be Rs 7,18,000 and exemption limit will be Rs 2.5 lakh.

Following table shows comparative tax payable under old and new income tax regimes:

old income tax regime, new income tax regimeTax comparison.

So, by shifting to new regime, Jayanti may save Rs 14,872 in the present scenario.

However, under the old tax regime, Jayanti has the option of invest in bank fixed deposit (FD) and earn up Rs 40,000 more without any tax outgo, as she will get up to Rs 50,000 exempted u/s 80TTB. However, this benefit is not available under the new income tax regime, and she would need to pay additional tax of Rs 5,200 (including cess) in the new regime.

“The new income tax regime introduced in the Budget 2020-21 represents that individual taxpayers, who opt for the new tax system, will have to forgo standard tax deduction and exemptions. The reduced tax rates make compliance less tedious, but tax experts who maximised their tax deductions may have to pay more tax as unveiled in the new tax regime,” said Ankit Agarwal, MD Alankit Ltd.

Moreover, under the old income tax regime, Jayanti has option of saving entire tax that is currently payable by investing Rs 1,50,000 in tax-saving investment(s) u/s 80C and by taking health insurance policy by paying premium of Rs 43,000 or more to avail 80D benefit of up to Rs 50,000. These would bring her taxable income down to Rs 5 lakh and she would get rebate on entire tax.

One more thing to be considered that, once Jayanti shifts to the new income tax regime, she can’t come back to the old regime and lose the opportunity to invest to avail deductions and save taxes.

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