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How new income tax rates impact those with Rs 10 lakh salary

An individual with a salary of Rs 10 lakh is wondering which tax structure will benefit them more. Should they opt for new tax regime sans tax exemptions and deductions or continue with existing tax structure with tax exemptions and deductions.

, ET Online|
Last Updated: Feb 13, 2020, 09.32 AM IST
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In order to check whether the deductions being claimed by you are more or less than the tax neutral figure, you need to total all the deductions, exemptions being claimed by you in the existing regime.
Post Budget 2020, everyone is trying to figure out if they should opt for the existing tax regime and continue availing tax-exemptions and deductions or switch over to the new tax regime with lower tax rates (sans tax exemptions and deductions) and lesser paper work.

The biggest question in the mind of salaried individuals earning Rs 10 lakh is which tax structure will benefit them more. If you are a salaried individual earning an annual income of Rs 10 lakh, the table below shows you the total amount of deductions and exemptions you will have to claim so that your tax liability remains the same in both tax regimes.

Particulars

Tax payable in Existing Regime

Tax payable in New Regime

Basic Salary + DA

3,88,600

3,88,600

Other Taxable Allowances

6,11,400

6,11,400

Gross Salary

10,00,000

10,00,000

Standard Deduction

-50,000

-

Income under the head salary

9,50,000

10,00,000

Chapter VIA deductions

-1,37,500

-

Income under the head salary

8,12,500

10,00,000

Income Tax (Rebate u/s 87A is NIL)

75,000

75,000

Cess @ 4%

3,000

3,000

Total tax, surcharge and education cess

78,000

78,000

Source: EY India

As given in the table above, if you are able to claim total deduction of Rs 1, 87, 500 (Rs 50,000 + Rs 1, 37, 500), then you are tax-neutral in both regimes, i.e., you end up with the same tax liability.

Therefore, don't switch to new tax regime if you claim deductions, exemptions of more than Rs 1, 87, 500 in a financial year. However, if the total amount of deduction claimed by you in a financial year is less than Rs 1, 87,500, then opt for the new tax regime as you will be paying lower tax.

In order to check whether the deductions being claimed by you are more or less than the tax neutral figure, you need to total all the deductions, exemptions being claimed by you in the existing regime. The commonly claimed deductions by a salaried tax payer include: standard deduction of Rs 50,000 for which a salaried taxpayer is eligible, section 80C deduction of maximum Rs 1.5 lakh, section 80D deduction for health insurance premiums paid and other deductions for which a taxpayer is eligible, section 80TTA deduction for interest received from a saving account held with bank or post office etc.

In the above calculation, we have only considered deductions claimable under Chapter VI A (i.e. Section 80C, 80D etc.) and standard deduction and have not considered other tax-exemptions such as house rent allowance (HRA) and leave travel allowance (LTA) etc which are also available to salaried tax payers. If a taxpayer has received HRA as a part of his/her salary and also paid rent in a financial year, then he/she can claim tax-exemption on the HRA subject to certain conditions. In case an individual is claiming these (HRA and LTA exemptions) too then these would also have to be included when calculating total amount of deductions, exemptions being claimed in existing regime.
Click here for all the information and analysis you need for tax-saving this financial year

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