Outdated revenue tax system or new? Which one do you have to select whereas submitting IT returns?


You’ve got been sharing your monetary information along with your CA for the previous few days and your CA referred to as you to let that it desires some extra information. She’s working exhausting to handle your taxes and get you one of the best calculations, so you may pay much less and save extra. The final date to file revenue tax returns is drawing nearer: It’s December 31.

You possibly can’t cease considering: However why is she taking so lengthy this 12 months? All Similar hello it occurs yearly, You’ve got heard him say one thing a few new tax system that is now in and efficient, and the way he is received to spend extra time than ever earlier than. it was work earlier thanHowever now he additionally has to verify whether or not the earlier system works effectively for you or the brand new one is healthier.

Picture: Getty Photos

Here is what it is advisable to know:

In case your revenue is as much as Rs 15 lakh or you don’t make investments a lot in tax saving schemes, then the brand new tax regime will probably be higher for you. However in case you are a excessive revenue earner (ie, you earn greater than Rs 15 lakh), then the outdated system could also be higher for you. In case your revenue is Rs 15 lakh, and also you go for the brand new tax price system, it can save you as much as a most of Rs 75,000. What’s the most loss you may face for those who go for the brand new plan? It’s infinite.

To determine which tax system is healthier for you, you simply want to think about 3 important components:

  1. tax price,
  2. gross complete revenue
  3. allowable deduction

a. The annual tax payable comes from: Internet Taxable Earnings (Rs.) * Charge of Tax (%)

b. Internet taxable revenue comes from: gross Whole Earnings – Allowable Deduction

Photo: Getty ImagesPicture: Getty Photos

The brand new tax system lowers the tax charges and thus supplies reduction to the taxpayer. However the brand new tax system additionally lowers the allowable deductions, making the taxpayer ‘horrified’.

Allow us to now look at the impression of every of the three components in each the schemes:

outdated plan

new plan

0-2.5 lakh – zero

0-2.5 lakh – zero

2.5 lac-5 lac – 5% (ie 5% on 2.5 lac)

2.5 lac-5 lac – 5% (ie 5% on 2.5 lac)

5 lakh-10 lakh – 20% (ie 20% on subsequent 5 lakh)

5 lakh-7.5 lakh – 10% (ie 10% on subsequent 2.5 lakh)

Above 10 lakhs – 30% (ie 30% on stability revenue above 10 lakhs)

7.5 lac-10 lac – 15% (ie 15% on subsequent 2.5 lac)

10 lac-12.5 lac – 20% (ie 20% on subsequent 2.5 lac)

12.5 lacs-15 lacs – 25% (ie 25% on subsequent 2.5 lacs)

Above 15 lakh – 30% (ie 30% on stability revenue)

  1. Earnings slabs within the outdated system turn out to be wider as tax charges rise. 5% is levied on Rs 2.5 lakh, 20% on subsequent Rs 5 lakh and 30% on all the things above. Within the new system, the slab is constantly elevated by 5% with each change of Rs 2.5 lakh. This makes the largest distinction for folks incomes lower than Rs 15 lakh.
  2. Any quantity in extra of Rs 15 lakh is taxed on the similar price (30%), no matter the system. Because the tax to be paid on revenue above Rs 15 lakh would be the similar, any distinction in tax will come up provided that the extent of revenue is lower than Rs 15 lakh,

So, let’s verify impact of tax charges In each the plans in case your Internet taxable revenue is Rs 15 lakh,

outdated plan

new plan

0-2.5 lakh – zero (ie zero)

0-2.5 lakh – zero (ie zero)

2.5 lakh-5 lakh – 5% (ie Rs.12,500)

2.5 lakh-5 lakh- 5% (ie Rs.12,500)

5 lakh-10 lakh – 20% (ie Rs. 1,00,000)

5 lakh-7.5 lakh – 10% (ie Rs. 25,000)

Above 10 lakh – 30% (ie Rs 1,50,000)

7.5 lakh-10 lakh – 15% (ie Rs 37,500)

10 lakh-12.5 lakh – 20% (ie Rs.50,000)

12.5 lakh-15 lakh – 25% (ie Rs.62,500)

Above 15 lakhs – 30% (ie not relevant)

Whole: Rs 2,62,500

Whole: Rs 1,87,500

On this case, the brand new regime seems to be higher as far as the decrease tax charges assist scale back the whole tax by Rs 75,000 (Rs 2,62,500 to Rs 1,87,500) if the revenue is Rs 15 lakh. In case your revenue is lower than Rs 15 lakh then your revenue will probably be lower than Rs 75,000.

to investigate internet taxable revenue We see: gross complete revenue that’s diminished by deduction, The gross complete revenue is basically the identical for each methods. So, it would not change something. Can we are saying the identical about deduction? No. That’s the actual sport changer.

Whereas the outdated regime permits taxpayers to proceed utilizing deductions corresponding to HRA and LTA, the brand new regime forces taxpayers to forgo a lot of the tax deductions and exemptions out there underneath the outdated regime (about 70 deductions).

The brand new regime doesn’t enable taxpayers to deduct bills corresponding to LTA, HRA, customary deduction on wage (Rs 50,000) and curiosity on housing loans, that are often availed by salaried staff to cut back their tax legal responsibility.

Not solely this, deductions additionally for particular investments like 80C, which is paid in the direction of Public Provident Fund, principal fee of dwelling mortgage, life insurance coverage premium, 80D, 80E usually are not allowed within the new regime. So what does it seem like?

  1. A salaried worker having funding and HRA/LTA relevant:

taxpayer in outdated scheme

Taxpayers within the new scheme

gross revenue from wage

18 lakhs

18 lakhs

Much less: Reductions and Deductions

Exemption for HRA

(1.2 lakh)

Zero

Exemption for LTA

(50,000)

Zero

customary deduction

(50,000)

Zero

Deduction underneath part 80C for EPF, PPF

(1.5 lakh)

Zero

internet internet revenue

14.3 lakh

18 lakhs

On this occasion, the outdated plan is useful to him as he can avail deduction to cut back his internet revenue.

2. A salaried worker having minimal or no funding and HRA/LTA is just not relevant:

taxpayer in outdated scheme Taxpayers within the new scheme
wage revenue 18 lakhs 18 lakhs
customary deduction -50,000 No
Deduction underneath part 80C for EPF, PPF (1.5 lakh) No
internet internet revenue i.e. wage 16 lakh 18 lakhs
Tax on: 3,04,200 2,88,600

So, the stunning factor is: what else does it profit you? Deduction or tax price? Select thoughtfully.Right here, the brand new regime turns into higher for the taxpayer as a result of even when the deduction is zero, the decrease tax price offers the taxpayer extra advantages than the deduction within the outdated regime.

By the way in which, to reiterate, the final date to file your revenue tax return is December 31, 2021.



Supply hyperlink

Online Rich Tech

Online Rich Tech