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

    Synopsis

    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.

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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.
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    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.
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    4 Comments on this Story

    uttam pal249 days ago
    please implement transaction tax
    uttam pal249 days ago
    modiji hai to mumkin hai
    Ram Bhattacharya254 days ago
    Please highlight the
    gross injustice to the senior citizens by slashing the tax exemption limit from Rs 3,00,000 (5,00,000 for very seniors) to Rs 2,50,000 for everybody. The effect of clubbing dividend income in total salary has disastrous effect on senior/ very senior citizens who had invested in equities and MFs to earn a decent income.
    I am 73 and in my case, if I had to pay Rs T as tax in FY 2020-21 as per the presently prevailing rates, my liability goes up to Rs 6T (old regime) and Rs 7T (new regime).
    Nobody is bringing out this cruelty to senior citizens in this year's proposed budget.
    The Economic Times