The New Income Tax Regime can Help You Save Money

The finance minister has announced a new tax regime from FY 2020-2021. So, individuals now have the option of paying tax under the new or old tax regime. This new system involves lower tax rates and additional tax slabs. However, it has removed many exemptions and deductions available under the old tax system. 

So, those who have earned income from 1 April 2020 can compare their tax liability using the new tax regime calculator and pay under the new or old tax system. More details are available below.

What are the tax rates under the new income tax regime?

The budget 2020 introduced a new tax regime under Section 115BAC. Under it individuals and other taxpayers enjoy reduced tax rates. A comparison between old and new tax slab rates is provided below to avoid mistakes in picking the right rate when using the new tax regime calculator:

• Old tax regime rate

Up to Rs.2,50,000: 0%

Rs.2,50,000 – Rs.5,00,000: 5%

Rs.5,00,000 – Rs.10,00,000: 20%

Above Rs.10,00,000: 30%

• New tax regime rate

Up to Rs.2,50,000: 0%

Rs.2,50,000 – Rs.5,00,000: 5%

Rs.5,00,000 – Rs.7,50,000: 10%

Rs.7,50,000 – Rs.10,00,000: 15%

Rs.10,00,000 – Rs.12,50,000: 20%

Rs.12,50,000 – Rs.15,00,000: 25%

Above Rs.15,00,000: 30%

Apart from this, individuals will also have to pay additional health and education cess of 4% on their total tax liability. Also, an additional surcharge is applicable if an individual’s income increases by a certain limit. However, since so much calculation is involved, it is better to use a income tax calculator for an accurate estimate.

Which one is better old or the new tax regime?

A taxpayer must consider different factors in determining the tax amount while deciding whether to pay tax under a new or old regime. For example, if someone has invested a lot of their money in medical insurance, education loan, home loan or PPF, it is beneficial to stick to the old tax slab.

However, if an individual has an annual income below Rs.15 lakh with no investment, they can save money following the new tax regime. For accurate tax calculation purposes, one can use the income tax calculator FY 2022-23. 

Moreover, if individuals are taking a home loan, they should know that tax benefits are available on both the principal amount of the loan and its interest. Individuals should strive to know everything needed to know about saving tax when taking a home loan before applying for one.

What income tax benefits are available on a home loan?

Section 80C and Section 24(b) of the Income Tax Act 1961 allows individual to access home loan tax benefits. The purpose behind this was to help citizen fulfil their dream of having their own house or investing in another. The benefits are as follows:

Tax deduction available on joint home loan

Tax benefits are available on a joint home loan if two borrowers take a home finance jointly. Each becomes eligible to claim a deduction of up to Rs.2 lakh on their loan interest under Section 24(b). Also, a deduction of up to Rs.1.5 lakh is available on the principal amount under Section 80C. As a result, the deduction amount gets doubled. 

Tax benefit applicable on second home loan

To incentivise citizens to invest in house property, the government introduced tax benefits on second home loans under Union Budget 2019. However, the aggregate deduction amount will depend directly on respective caps. 

Apart from tax benefits, there are other beneficial features many HFCs and NBFCs provide. For example, individuals can check their pre-approved offers by entering their name and contact details. These offers are available on home loans and loans against property. It allows borrowers to experience a quick and hassle-free loan approval process. 

To sum up, the government has introduced a new tax regime to make taxpaying easy for individuals. As a result, one can enjoy low tax rates. Also, taxpayers can avoid the complex terms of deductions and exemptions too. To ensure they are not paying more tax than necessary, they can take the help of a new tax regime calculator.