Union Budget 2022: Demystifying the old and new tax regime

NEW DELHI: Want to be taxed at lower rates? Then you could opt for the concessional personal income-tax regime (introduced FY 2020-21 and often referred to as the new regime) which gives reduced slab rates on annual income up to Rs 15 lakh.

But there’s a catch. To avail this, you have to forgo a lot of exemptions (such as HRA, LTA etc), deductions (such as standard deduction of Rs 50,000 on salary, deduction under Section 80C for investment in PF, PPF, LIC premium of up to Rs 1.5 lakh) and losses (such as house property loss) available under the general or old regime.

But remember switching to the concessional regime is completely ‘optional’. So you could opt for the old regime which allows you to avail exemptions, deductions and losses so that your net taxable income is reduced, and such reduced income is subject to tax at applicable slab rates.

HOT TIP: You can switch from old and new regimes every year. Confused whether to opt for old or new regime? Let’s explain with some examples:

Mr A has gross salary income of Rs 15 lakh. He does not avail any exemptions or deductions currently. With only standard deduction of Rs 50,000, his annual tax liability is Rs 2,57,400. He is better-off under the new/concessional regime as he will save tax of Rs 62,400.

Ms B also has gross salary of 15 lakh, but claims tax exemptions on HRA, standard deduction and Section 80C deduction. Her current tax bill is Rs 117,000 with standard deduction of 50,000, say a tax exemption on HRA of Rs 3 lakh and Section 80C deduction of Rs 1.5 lakh. Mrs B is better-off continuing under the old regime as her tax liability will increase by Rs 78,000 if she forgoes current exemptions and deductions.

Take a look at this chart to check your salary level vis a vis the regime that will work for you: