Now that the new financial year is here and the deadline to file the income tax return is just a few days away, i.e., 31st December 2020, my phone is flooded with calls from my clients asking which taxation option to choose for FY 2020-21 and I know, even you have the same question. So, I am here with this blog post to help you out.
This blog post will answer all of your questions related to which tax regime to choose, read till the end.
There are two options of taxation to choose from:
- The old taxation regime and,
- The new taxation regime.
Let me walk you through both of these options and make it easy for you to make a choice.
|ANNUAL INCOME||OLD RATES (with exemptions)||NEW RATES (without exemptions)|
|Upto 2.5 lakh||NIL||NIL|
|2.5 – 5 lakh||5%||5%|
|5 – 7.5 lakh||20%||10%|
|7.5 – 10 lakh||20%||15%|
|10 – 12.5 lakh||30%||20%|
|12.5 – 15 lakh||30%||25%|
|15 and above||30%||30%|
The above comparison of both the income tax return options would have given you some clarity about which option to choose.
To understand the difference between the two tax regimes, the new regime looks like it can save a lot of taxes. But I wish the tax laws are as simple and easy to understand as they look.
There’s a catch in the new tax regime. It tells that you can’t get any deductions or exemptions on your income if you offer your income to tax as per the new regime.
You can choose any one of these taxation options but, how will you find the best fit for you? If you have a business, you will get the option to choose the taxation regime only once. If you are salaried, you can choose your option every year.
Let me guide you through how you can find the right taxation regime for filing your taxes.
- List down the gross income across all five categories of income.
- List down all the deductions you can get for your income. (Download the free income tax deductions checklist)
- Now that you have all the numbers ready with you go to the income tax filing website, www.incometaxindiaefiling.gov.in
- Click on the option as mentioned in the photo, Tax Calculator for FY 2020-21
- On the calculator, mention your age, gross income, and total deductions.
- The difference in tax liability and the tax savings by choosing the Old vs. New Tax Regime is displayed on your screen.
Follow all of the steps, and you will be sure about the taxation regime you would want to go for.
I hope this blog post helped you in determining the best tax regime for YOUR income.