A lot of people are wondering which Income tax regime should they opt in. Let us help you understand what's beneficial for you and the process behind it. The New tax regime was introduced by the government in Budget 2020 U/s 115BAC of Income Tax act applicable from FY 20-21. The intention was to reduce the tax liability for people who don't have any deductions which can they claim while filing their taxes. Individuals & HUF are eligible to opt in to the new tax regime.
Let's understand what the difference is in both the schemes.
The primary difference is the tax rates:-
The second difference is you won't be able to claim any of the following deductions under new scheme:
Chapter VI - A i.e (80C, 80D, 80E & so on which in simpler terms is your contribution to PF, Tax saver FD, repayment of housing loan, medical insurance and so on).
Standard deductions, Professional tax & entertainment allowance
Leave Travel allowance, House Rent allowance
Interest payment on housing loan on a self occupied property
In case of business income, one cannot set off unabsorbed business loss or depreciation or claim additional depreciation U/s 32.
So to opt in for the new scheme & use the new tax rates, you should not take these deductions into consideration while calculating your total income.
To understand which one is beneficial for you, calculate your total income as per both schemes. Head over to https://www.incometaxindia.gov.in/Pages/tools/tax-calculator.aspx To compute tax under new scheme select to opt in for 115BAC. And for old scheme don't opt in. The income tax website will automatically calculate tax in both cases and you can choose the one that's beneficial for you or you can compute the taxes on your own using the tax rates given above.
Generally, if your Gross total Income (i.e income before deductions) is below or equal to Rs.11.5 lakhs and your Chapter VI-A deductions is around 1.5 lakhs, old scheme will be beneficial. My personal opinion is its going to beneficial mostly for HUF as a lot of HUF don't have chapter VI-A deductions or any other eligible deductions.
If you are opting in for a new scheme Form 10IE has to be filed on Income tax portal before or at the time of filing of return if your income is just salary Income & before due date if your income includes business Income.