The Finance Act 2020 has brought in a new tax regime for calculating TDS on salary. The employee is required to choose either the old or the new tax regime and intimate the same to the employer. The choice once made cannot be modified during the remaining part of the financial year for the purpose of deduction of TDS, however the employee while filing his/her Income Tax return at the end of the financial year can choose either of the regimes & file the ITR accordingly. Hence, every employee has the option to avail the new tax regime at the beginning of the year by giving intimation to employer and also again at the time of filing income tax return as well.

New vs Old Tax Slab Rates

NEW TAX SLAB RATE (NON-SENIOR CITIZENS)

Income RangeTax Rate
Upto Rs. 2,50,000.00NIL
Rs. 2,50,001 to Rs. 5,00,000.005% (Tax rebate of Rs. 12,500.00 U/s. 87A is allowed)
Rs. 5,00,001.00 to Rs.7,50,000.0010%
Rs.7,50,0001.00 to  Rs.10,00,000.0015%
Rs. 10,00,001.00 to Rs. 12,50,000.0020%
Rs. 12,50,000.00 to Rs. 15,00,000.0025%
Rs. 15,00,000.00 and above30%

OLD TAX SLAB RATE (NON-SENIOR CITIZENS)

Income RangeTax Rate
UptoRs. 2,50,000.00NIL
Rs.2,50,001 to Rs. 5,00,000.005% (Tax rebate of Rs. 12,500.00 U/s. 87A is allowed)
Rs. 5,00,001.00 to Rs. 10,00,000.0020%
Rs.10,00,000.00 and above30%

Note: Health and Education Cess @ 4% on tax amount & Surcharge as applicable shall be in addition to the above rates.

Conditions for applicability of the New Tax Regime:

Following exemptions & deductions shall not be allowed in calculating income for the purpose of TDS deduction if the employee opts for the new tax regime:

  1. Section 80C deductions like Life Insurance premiums, Provident Fund, NPS, Home loan principal repayment, etc.
  2. Section 80D deductions for medical insurance premiums
  3. Section 80G: Donations to Charitable Institutions
  4. Section 80TTA/80TTB: Deduction in respect of interest on deposits in savings account
  5. Interest paid on education loan u/s 80E
  6. Leave Travel Allowance (LTA)
  7. House Rent Allowance (HRA)
  8. Interest component of housing loan EMI on self-occupied house property/vacant house property (Note: Interest component of housing loan EMI on house property that is rented out will still be allowed as a deduction u/s 24(b))
  9. Other allowances like conveyance allowance, relocation allowance, etc. that form part of CTC
  10. Standard deduction of Rs. 50,000/-

The individuals will have to work out their tax liability under the old and new tax regime before deciding which one is more beneficial for them.

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