Hi RediffGurus, based on new tax structure announced by FM in today's budget, how much benefit can one expect if he/she was already following new tax-regime and is in higher income bracket (>15 LPA)?

Ans: As per Budget 2020, if an assessee opts for the new tax regime, one will have to forego around 7o deductions & exemptions. This includes major deductions like Sec.80C, standard deduction of Rs.50K, HRA, etc.

You can still claim following exemptions under the New tax Regime:

1. Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
2. Any compensation received to meet the cost of travel on tour or transfer.
3. Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.
4. Transport allowances in case of a specially-abled person.

Ans: Hi Prasanna
While the increase in limit from Rs. 5 Lakhs to Rs. 7 Lakhs is merely to accomodate the lower income segment and does not really make a difference to the highest tax bracket individuals. In this context, earlier, individuals whose income did not exceed Rs. 5 Lakhs had to pay Nil tax whether or not they opted for the new regime. The budget proposals has enhanced this limit to Rs. 7 Lakhs for individuals who opt for new tax regime but the earlier limit of Rs. 5 Lakhs would remain for individuals who opt for the old regime.

The slab rates for new tax regime have been tweaked to provide a small reduction in the tax liability as compared to the previous year.

Also, standard deduction benefit that was not available to an individual opting for new tax regime has now been allowed.

All in all, opting for new tax regime may now be beneficial.

Ans: Hi
The difference between the old and new tax regime is that many deductions and exemptions are not available if an individual opts for the new tax regime.

Standard deduction, PT deduction, Mediclaim, Life Insurance, PF, NPS, Donations etc., are some of the common deductions that would not have been available to an individual opting for the new tax regime. The benefit that the individual would get by opting the new tax regime is that she / he would get lower rates of tax slab as compared to an individual opting for old tax regime.

With the new budget proposals, the FM intends to extend atleast 3 distinct benefits to individuals opting for the new tax regime.

1. Standard deduction would be available to be claimed
2. Slab rates of tax has been rationalized (improved) to give better tax relief to the individual
3. Individuals opting for new tax regime have got enhanced Nil tax window of Rs. 7 Lakhs as compared to old tax regime limit of Rs. 5 Lakhs. As your income even after the standard deduction would be above Rs. 7 Lakhs, this benefit is not really applicable to you.

If we look at an income of Rs. 10 Lakhs with standard deduction of Rs. 50000; you would pay Rs. 52,500 under the new tax regime (current budget proposal) as compared to Rs. 67,500 under the new tax regime (last year budget). So effectively comparing apple to apple, you have an additional saving of Rs. 15,000 in taxes

Ans: The tax you save would depend on the deductions that you make (the old regime will lower taxable income for permissible deductions and thus have a lower tax to that extent). Most of these deductions are not available in the new tax regime.
If you claim no deductions other than standard deduction, the tax saving comes to about Rs 1 lakh under the new regime. If you claim Sec 80C and NPS, then new regime would be better by Rs 39,000

Ans: Person getting salary of Rs.8.5 lakh, not claiming much of deduction is likely to save tax under new tax regime, as tax liability is expected to be lower with new slab rate proposed for FY 23-24 under new tax regime