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Introduction
For salaried individuals earning over ₹20 lakh
annually in FY 2025–26, effective tax planning is crucial to minimize
liabilities. With the introduction of revised tax slabs and limited deductions
under the new tax regime, taxpayers must strategically choose between the old
and new regimes to optimize their tax outgo. This article delves into the
available options, comparing both tax regimes and highlighting key investment
avenues to reduce taxable income.
Background: Understanding the Tax Regimes
Old Tax Regime
The old tax regime allows taxpayers to claim
various deductions and exemptions, such as:
·
Section 80C:
Investments in PPF, ELSS, NSC, etc., up to ₹1.5 lakh.
·
Section 80D:
Premiums for health insurance.
·
Section
24(b): Interest on home loan for self-occupied property.
·
HRA
Exemption: House Rent Allowance received.
This regime is beneficial for individuals with
significant deductions and exemptions.
New Tax Regime
Introduced under Section 115BAC, the new tax
regime offers reduced tax rates but eliminates most deductions and exemptions.
However, certain benefits remain:
·
Standard Deduction:
₹75,000 for salaried individuals.
·
Section
80CCD(2): Employer's contribution to NPS.
·
Section
87A Rebate: ₹60,000 for incomes up to ₹12.75 lakh, excluding special
incomes like STCG.
This regime suits individuals with fewer
deductions and a preference for simpler tax calculations.
Detailed Explanation: Tax Calculation and
Savings
Tax Calculation Under the Old Regime
For a salary of ₹20 lakh, the tax calculation
under the old regime is as follows:
·
Gross
Salary: ₹20,00,000
·
Less:
Deductions:
o Section 80C: ₹1,50,000 (e.g., PPF, ELSS)
o Section 80D: ₹25,000 (health insurance)
o Section 24(b): ₹2,00,000 (home loan
interest)
·
Net
Taxable Income: ₹16,25,000
Applying the tax slabs:
·
₹2,50,000 @ 5% = ₹12,500
·
₹2,50,000 @ 20% = ₹50,000
·
₹11,25,000 @ 30% = ₹3,37,500
·
Total Tax:
₹3,12,500
·
Add: Cess
(4%): ₹12,500
·
Total Tax
Payable: ₹3,25,000
Tax Calculation Under the New Regime
Under the new regime, the tax calculation is:
·
Gross
Salary: ₹20,00,000
·
Less:
Deductions:
o Section 80CCD(2): ₹1,50,000 (employer's
NPS contribution)
·
Net
Taxable Income: ₹18,50,000
Applying the revised tax slabs:
·
₹4,00,000 @ 5% = ₹20,000
·
₹4,00,000 @ 10% = ₹40,000
·
₹4,00,000 @ 15% = ₹60,000
·
₹4,00,000 @ 20% = ₹80,000
·
₹2,50,000 @ 25% = ₹62,500
·
₹2,50,000 @ 30% = ₹75,000
·
Total Tax:
₹3,17,500
·
Add: Cess
(4%): ₹12,700
·
Total Tax
Payable: ₹3,30,200
Note: The
tax slabs and rates are based on the revised structure for FY 2025–26.
Impact Analysis: Who Benefits and How
Taxpayers
·
Old Regime:
Beneficial for those with substantial deductions and exemptions.
·
New Regime:
Suitable for individuals with fewer deductions or those preferring lower tax
rates.
Businesses
·
Payroll
Management: Understanding employee preferences for tax regimes can aid
in better payroll planning.
·
NPS
Contributions: Encouraging NPS contributions can provide tax benefits
under both regimes.
Auditors / Chartered Accountants
·
Advisory
Role: Guiding clients in choosing the optimal tax regime and
investment options.
·
Compliance:
Ensuring adherence to tax laws and timely filing of returns.
Common Misunderstandings
·
Section
80C Limit: The ₹1.5 lakh limit is the combined total for all eligible
investments under Section 80C, not per investment.
·
NPS
Contributions: Only employee contributions qualify for deductions
under Section 80CCD(1B); employer contributions fall under Section 80CCD(2).
·
Tax Regime
Choice: Once chosen, the tax regime remains for the entire financial
year; switching between regimes mid-year is not permitted.
Expert Commentary
"High-income earners should assess their
financial portfolio to determine the most beneficial tax regime. While the new
regime offers lower tax rates, the old regime provides opportunities for
significant deductions. A tailored approach, considering individual financial
circumstances, is essential," says [Expert Name], a seasoned tax
consultant.
Conclusion: Strategic Tax Planning
In conclusion, salaried individuals earning
above ₹20 lakh in FY 2025–26 must evaluate their financial situation to select
the most advantageous tax regime. By strategically utilizing available
deductions and exemptions, taxpayers can effectively manage their tax
liabilities. Consulting with tax professionals can provide personalized
insights and ensure compliance with the latest tax laws.
FAQs
1. Can I
switch between the old and new tax regimes during the financial year?
No, once you opt for a tax regime, it remains
applicable for the entire financial year.
2. Are
there any deductions available under the new tax regime?
Yes, limited deductions such as the standard
deduction of ₹75,000 and employer's NPS contribution under Section 80CCD(2) are
available.
3. How
can I determine which tax regime is more beneficial for me?
Assess your eligible deductions and exemptions
under the old regime and compare the tax liabilities under both regimes. Tax
calculators can assist in this evaluation.
4. What
are the revised tax slabs for FY 2025–26?
The revised tax slabs are as follows:
·
Up to ₹4 lakh: Nil
·
₹4 lakh - ₹8 lakh: 5%
·
₹8 lakh - ₹12 lakh: 10%
·
₹12 lakh - ₹16 lakh: 15%
·
₹16 lakh - ₹20 lakh: 20%
·
₹20 lakh - ₹24 lakh: 25%
·
Above ₹24 lakh: 30%
5. Can I
claim both standard deduction and Section 80C deductions?
No, under the new tax regime, most deductions,
including Section 80C, are not available. Only the standard deduction of
₹75,000 is applicable.
References
· Income Tax Department – Tax Regimes
· ClearTax – Tax Saving Strategies
· Bajaj Finserv – Tax Saving Tips
· Groww – Income Tax Calculator
· IndiaFirst Life – Income Tax Rules