The Finance Ministry has brought a ‘New Taxation Regime’ to simplify the Income Tax Act. There is prevailing confusion as to ‘which tax regime is better? and the only answer that is definitely correct is ‘it depends!!’
On one hand, the new tax regime offers lucrative slab rates to lower the effect of taxation, while it increases the total income by removing several sorts of deductions from the income like standard deduction, chapter VI-A deductions and many more. This sadly leaves us with no specific equation by which the tax regime which should be go for can be computed.
The only option that remains is to calculate the tax at several levels of income and to find out the point of indifference – a point of income on which the tax as per old regime & new regime are equal and where it does not matter what tax regime you choose. Any range of income below the point of indifference will draw lower taxes only if old tax regime is opted and any income above that point of indifference will draw lower taxes in the new tax regime.
Below are some ready references related to tax regimes & the point of indifference calculator:
- Following are the rates of taxation prevailing from AY 2021-22 for different slabs in the old & new tax regimes:
| Income Tax Slab | Existing Regime Slab Rates for AY 2021-22 | Existing Regime Slab Rates for AY 2021-22 | Existing Regime Slab Rates for AY 2021-22 | Existing Regime Slab Rates for AY 2021-22 |
| Individuals < 60 years of age | Individuals >= 60 but up to 80 years of age | Individuals >= 80 years of age | Applicable for all ages | |
| 0.00 – 2.50 Lacs | NIL | NIL | NIL | NIL |
| 2.50 – 3.00 Lacs | 5% (rebate under section 87A available) | NIL | NIL | 5% (rebate under section 87A available) |
| 3.00 – 5.00 Lacs | 5% (rebate under section 87A available) | 5% (rebate under section 87A available) | NIL | 5% (rebate under section 87A available) |
| 5.00 – 7.50 Lacs | 20% | 20% | 20% | 10% |
| 7.50 – 10.00 Lacs | 20% | 20% | 20% | 15% |
| 10.00 – 12.50 Lacs | 30% | 30% | 30% | 20% |
| 12.50 – 15.00 Lacs | 30% | 30% | 30% | 25% |
| > 15.00 Lacs | 30% | 30% | 30% | 30% |
- It can be reckoner from the point of indifference calculation that for persons having deductions from total income (like standard deduction, HRA, chapter VI-A deductions etc.) equal to or more than INR 25 lacs, then at each and every level of income, the existing tax regime will only be better.
- Thus, to find out which tax regime is more suitable, first have a check whether the deductions or the planned deductions are equal to or more than INR 25 lacs. If yes, then directly go for the existing tax regime instead of going for the new rates. In case the deductions are less than INR 25 lacs, then find out the better tax regime.