New vs Old Tax Regime: The due date of Income Tax Return (ITR) filing for Financial Year 2020-21 has been extended till 31st December 2021. So now you have some more time for filing the tax returns and deciding on what to choose between the new tax regime and the old regime. The Income Tax Act provides you with an option to shift from the old tax regime to the new tax regime and vice versa on an annual basis. However, you may still be wondering about which regime will be better for you.
Experts suggest that choosing the right tax regime doesn’t depend only on the salary level but also other factors such as whether you have made investments in specified eligible deductions, whether you have a housing loan, etc.
According to Dr Suresh Surana, Founder, RSM India, generally the new tax regime is appropriate for those, who don’t want to avail investment-based deductions and want short term liquidity in their hands for varied purposes, such as job loss, salary deduction, emergency fund, medical expenditure, other immediate contingencies, etc.
“Also, it depends on the salary levels, as those in the salary range of up to Rs. 15 lakhs may have more inclination to opt for the new tax regime as compared to those falling in higher tax brackets, as the basic tax rates are lower for income up to Rs. 15 lakhs,” Dr Surana told FE Online.
The Finance Act 2020 introduced a new personal tax regime for individual taxpayers which provides for concessional tax rates.
However, option for such concessional tax regime requires the taxpayer to not avail certain specified deductions like:
- 10(13A) – House Rent Allowance
- 10(5) – Leave travel Concession
- 10(14) – Special allowance detailed in Rule 2BB (such as children education allowance, hostel allowance, etc. other than transport allowance, travel allowance, daily allowance).
- 10(17) – Allowances received by MP, member of state legislature, etc.
- 10(32) – Clubbing benefit of Rs. 1500 per minor child
- 10AA – Deduction for SEZ unit
- Section 16 – Standard Deduction of Rs. 50000, Entertainment Allowance, Professional Tax
- 24(b) – Interest on borrowed loan for a Self Occupied property or Vacant Property u/s 23(2)
- 32(1)(iia) – Additional Depreciation
- 32AD – Investment Allowance for investment in Andhra Pradesh/Telangana/Bihar/West Bengal
- 33AB – Tea / Coffee / Rubber Development
- 33ABA – Site Restoration Fund
- 35(2AA) – Deduction for Payment to National Laboratory or University or IIT
- 35AD – Deduction in respect of specified business
- 35CCC – Expenditure on an agricultural extension project
- 57(iia)- Family pension
- Any provision of chapter VI – A – section 80C, 80D etc. However, Section 80CCD(2) (employer contribution on account of the employee in a notified pension scheme), section 80JJAA deductions are available even in the New Tax regime.
“Ideally, the choice of beneficial option between the old tax regime and new tax regime depends upon the composition of the nature of income of the taxpayer as well as the investments made,” said Dr Surana.