The tax liability and TDS would be different in the Old and New Income Tax Regime, depending on gross income and amount of tax-saving investments/deductions.
Finance Minister Nirmala Sitharaman has extended the deadline for filing of Income Tax Return (ITR) for Financial Year (FY) 2019-20 to November 30, 2020 from the original deadline of July 31, 2020. However, there will be little respite in tax deducted at source (TDS) from your salary for FY 2020-21, if you fail to submit your investment declaration on time.
Unable to reach out to the experts or the accounts department for help due to the lockdown to contain the spread of the highly contagious Novel Coronavirus COVID-19, employees are clueless on whether to choose the Old Income Tax Regime or the New one in the modified investment declaration form, as the deadline to submit the form is almost over.
As the tax liability and TDS would be different in the Old and New Income Tax Regime, depending on gross income and amount of tax-saving investments/deductions, selecting the right Regime is very important to minimise the tax outgo.
Moreover, once selected, the Regime cannot be changed, because according to the ordinance issued by the government, it is mandatory for employees to choose the Income Tax Regime at the start of the year and the same will be continued till the end of the year.
“Salaried employees can switch between old and new tax regimes every year,” said CA Karan Batra, Founder and CEO CharteredClub.com.
While salaried taxpayers have the option to change the Regime next financial year or at the time of filing ITR, other assessees can’t get back to the Old Regime, once the ITR is filed under the New Regime.
So, you need to know at which income level, which Regime would be beneficial for you.
Along with your income, the amount of tax-saving investments and deductions will determine your tax outgo under the Old and New Regimes as there are higher numbers of tax slabs under the New Regime with lower tax rates, but no tax-saving investments/ deductions are available.
If you don’t have any tax-saving investment/deduction, the New Regime will be beneficial for income above Rs 5 lakh.
For tax-saving investments/deductions of Rs 50,000 the break even income will be Rs 6 lakh, above which the New Regime will be beneficial.
If your tax-saving investments/deductions are Rs 75,000, the New Regime will be beneficial for income above Rs 6.5 lakh.
On the other hand, the New Regime will be beneficial for income above Rs 7 lakh, if your tax-saving investments/deductions are Rs 1 lakh.
For tax-saving investments/deductions of Rs 1.5 lakh, the New Regime will be beneficial only above the income level of Rs 8.5 lakh.
If your tax-saving investments/deductions are Rs 2 lakh, the New Regime will be beneficial for you for income above Rs 12,25,000.
The New Regime would be beneficial only up to income level of Rs 15 lakh, if you fail to match the tax-saving investments/deductions up to Rs 2.5 lakh.
Above the break even level of Rs 15 lakh annual income and Rs 2.5 lakh annual tax-saving investments/deductions, the New Income Tax Regime won’t have any advantage over the Old Regime.
So, if your tax-saving investments/deductions are above Rs 2.5 lakh, the Old Income Tax Regime will only be beneficial for you, irrespective of your level of income.