Budget 2020 announced a new income tax regime in which taxpayers get charged lower income tax rates.
But there's a condition: you have to forgo several tax deductions and exemptions. This would include the most popular one; section 80C deduction limit of Rs 1.5 lakh.
Other popular tax deduction benefits such as health insurance premium (Section 80D), home loan interest paid (Section 24), house rent allowance (Section 10) and National Pension Scheme (Section 80CCD-1B).
The question is: is the new tax regime so beneficial that it is worth forgoing tax deduction benefits?
Our tax partner Deloitte ran the numbers for Moneycontrol and found out that tax deduction benefits actually help lower your taxes more than just lower tax rates.
The benefit that lower tax plus no deduction benefits may help reduce your paperwork (for instance, no need now to submit your investment proofs), the actual benefits don’t make it worth your while. Especially, if you are claiming multiple deductions.
Below is how much you will pay if you claim only Rs 1.5 lakh deduction, which is the standard exemption typically provided under Section 80C.
Below is how much tax you will pay at various salaries when you avail exemption of Rs 3 lakh.
Below is the same calculation as above but for senior citizens (above 60 years of age).
Finally, below is a tax calculation for very senior citizens (above 80 years of age).
Source : Moneycontrol.com
But there's a condition: you have to forgo several tax deductions and exemptions. This would include the most popular one; section 80C deduction limit of Rs 1.5 lakh.
Other popular tax deduction benefits such as health insurance premium (Section 80D), home loan interest paid (Section 24), house rent allowance (Section 10) and National Pension Scheme (Section 80CCD-1B).
The question is: is the new tax regime so beneficial that it is worth forgoing tax deduction benefits?
Our tax partner Deloitte ran the numbers for Moneycontrol and found out that tax deduction benefits actually help lower your taxes more than just lower tax rates.
The benefit that lower tax plus no deduction benefits may help reduce your paperwork (for instance, no need now to submit your investment proofs), the actual benefits don’t make it worth your while. Especially, if you are claiming multiple deductions.
Below is how much you will pay if you claim only Rs 1.5 lakh deduction, which is the standard exemption typically provided under Section 80C.
Below is how much tax you will pay at various salaries when you avail exemption of Rs 3 lakh.
Below is the same calculation as above but for senior citizens (above 60 years of age).
Finally, below is a tax calculation for very senior citizens (above 80 years of age).
Source : Moneycontrol.com
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