NEW SIMPLIFIED TAX REGIME AND SENIOR CITIZENS

2/2/2020

UNION BUDGET 2020-21 AND
SENIOR CITIZENS

EFFECTS OF NEW SIMPLIFIED TAX REGIME FOR SENIOR CITIZENS

As here is no change in tax slabs for fy 2021-22 , the observations madein this article is valid for FY 21-22 ( AY 22-23 ) also

02.02.2020 : In the yesterday's budget speech , Finance Minister Ms Nirmala Sitharaman announced a New and Simplified Personal Income Tax regime for FY 2020-21 under which Income tax rates are lowered and a simple income tax structure is unveiled . The new income tax is optional . Either you can opt for it or you may use the last year's IT slabs and rebates / deductions whichever is convenient .

Under the new regime , tax calculation is simple . " Just tell me your income , I will tell your tax " as it allows few exemptions . It applies to people of all ages . New rates are lesser than the existing rate structure and are as follows ( The rates for the year 2019-20 is for senior citizens ) :

.

Income	IT RATES FOR FY 2019-20	IT RATES UNDER NEW REGIME	DIFFERENCE
UP TO RS 2.5.LAKHS	0 %	0%	NIL
2.5 TO 3.00 LAKHS	0%	5%	-5%
3.00 TO 5.00 LAKHS	5%	5%	NIL
5.00 TO 7.5 LAKHS	20%	10%	10%
7.5 TO 10.00 LAKHS	20%	15%	5%
10.00 TO 12.50 LAKHS	30%	20%	10%
12.5 TO 15 LAKHS	30%	25%	5%
ABOVE 15 LAKHS	30%	30%	NIL

NOTE : If Income is less than Rs 5,00,000 , Rebate of Rs 12,500 can be used in both the regime and hence there will be NIL Taxation in both the regimes up to Rs 5.00 lakh income

We can see from the above chart that there is savings up to 10 % in each of the slabs , if we opt for new regime . New regime appears simple with lower taxes . But the new regime comes with a clause like " Terms & conditions apply " in commercial advertisement . If you opt for new regime , you have to forgo most of the rebates / deductions you were claiming in the earlier years .

New Updated Article

TAX PLANNING FOR FY 2021-22 ( AY 2022-23 )
Comprehensive Article on Income tax changes in Rules, Rates , Slabs , Rebates and Estimation

CLICK HERE TO READ

WHAT SENIOR CITIZENS LOSE / GAIN IN THE NEW IT REGIME ?

THE PRIVILEGES SENIOR CITIZENS TO LOSE :

1. Pensioners will lose standard deduction of Rs 50,000 in the new regime .
2. Deduction of Rs 50,000 under section 80 TTB on interest income from bank deposits will not be available for senior citizens .
3. Health insurance premium paid up to Rs 50,000 available to senior citizens under section 80 D will not be available in the new scheme .
4. Senior citizens having more than Rs 5 lakh total income have to pay now for slab between Rs 2.50 lakh to Rs 3.00 lakh which was not being paid earlier ( Additional tax payment of Rs 2,500 )
5. Super Senior citizens will have to pay now for slab between Rs 2.50 lakhs to Rs 5 .lakhs which was earlier exempted , if total income exceeds Rs 5 lakhs . ( Additional tax payment of Rs 12,500 )

There are more than 70 rebates and deductions which senior citizens may have to forgo along with other citizens . But you may not be using all of them now .

THE PRIVILEGES SENIOR CITIZENS WILL RETAIN IN THE NEW REGIME :

The following tax exemptions available on Retirement benefits will continue to be available under the new tax regime also .

1. Tax free gratuity up to Rs 20 lakhs
2. Leave encashment on retirement
a. Government employees - No limit
b. Others - Rs 3.00 lakhs
3. Benefits available on VRS - Maximum of Rs 5 .00 lakhs
4. Deductions available on Commuted Pension .

THE ADDITIONAL PRIVILEGES FOR SENIOR CITIZENS IN THE NEW REGIME :

NIL
except for the new tax structure which is lower than the present one

HOW MUCH A SENIOR CITIZEN CAN SAVE IN THE NEW REGIME ?

In order to find how much gain a senior citizen can have or how much he / she loses by opting for new regime , we have taken four examples of senior citizens who are eligible for different levels of rebates and deductions . We will work out for each category for their different levels of income . The four categories are .

1. CATEGORY A : Businessmen and Professionals who are not enjoying any rebate and deductions like standard deduction , interest income , etc . Their rebates are NIL now .

2. CATEGORY B :Retirees and pensioners who are enjoying standard deduction of Rs 50,000 , Deduction on bank deposit interest up to Rs 50,000 and Rebate of Rs 50,000 under 80D for health insurance premium . Total Rebates they are enjoying is Rs 1,50,000 .

3. CATEGORY C :Retirees and pensioners who are enjoying standard deduction of Rs 50,000 , Deduction on bank deposit interest up to Rs 50,000 and Rebate of Rs 50,000 under 80D for health insurance premium . Further they are enjoying additional benefits of Rs 1,50,000 under section 80C by contributing to LIC premium etc . Total Rebates they are enjoying is Rs 3,00,000 .

4. CATEGORY D :Retirees and pensioners who are enjoying standard deduction of Rs 50,000 , Deduction on bank deposit interest up to Rs 50,000 and Rebate of Rs 50,000 under 80D for health insurance premium . Further they are enjoying additional benefits of Rs 1,50,000 under section 80C by contributing to LIC premium etc and additional deductions for housing loan etc up to another Rs 1,50,000 . Total Rebates they are enjoying is Rs 4,50,000 .

Now let us examine the tax liability under both old and new regimes for each of the categories at different income levels

CATEGORY A ( WITH NIL EXEMPTIONS AND REBATES ) :

INCOME	TAX UNDER OLD SCHEME	TAX UNDER NEW REGIME	DIFFERENCE
5 LAKHS	NIL	NIL	NIL
6. LAKHS	30,000	22,500	7,500
7 LAKHS	50,000	32,500	17,500
8 LAKHS	70,000	45,000	25,000
9 LAKHS	90,000	60,000	30,000
10 LAKHS	1,10,000	75,000	35,000
11 LAKHS	1,40,000	95,000	45,000
12 LAKHS	1,70,000	1,15,000	55,000
13 LAKHS	2,00,000	1,37,500	62,500
14 LAKHS	2,30,000	1,62,500	67,500
15 LAKHS	2,60,000	1,87,500	72,500

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CATEGORY B ( WITH EXEMPTIONS AND REBATES OF TOTAL RS 1,50,000 ) :

INCOME	TAX UNDER OLD SCHEME	TAX UNDER NEW REGIME	DIFFERENCE
RS 5 LAKHS	NIL	NIL	NIL
6 LAKHS	NIL	22,500	-22,500
7 LAKHS	20,000	32,500	-12,500
8 LAKHS	40000	45,000	-5,000
9 LAKHS	60000	60,000	NIL
10 LAKHS	80,000	75,000	5,000
11 LAKHS	1,00,000	95,000	5,000
12 LAKHS	1,25,000	1,15,000	10,000
13 LAKHS	1,55,000	1,37,500	17,500
14 LAKHS	1,85,000	1,62,500	22,500
15 LAKHS	2,15,000	1,87,500	27,500

CATEGORY C ( WITH EXEMPTIONS AND REBATES OF TOTAL RS 3,00,000 )

INCOME	TAX UNDER OLD SCHEME	TAX UNDER NEW REGIME	DIFFERENCE
5 LAKHS	NIL	NIL	NIL
6 LAKHS	NIL	22,500	-22,500
7 LAKHS	NIL	32,500	-32,500
8 LAKHS	NIL	45,000	-45,000
9 LAKHS	30,000	60,000	-30,000
10 LAKHS	50,000	75,000	-25,000
11 LAKHS	70,000	95,000	-25,000
12 LAKHS	90,000	1,15,000	-25,000
13 LAKHS	1,10,000	1,37,500	-27,500
14 LAKHS	1,40,000	1,62,500	-22,500
15 LAKHS	1,70,000	1,87,500	-17,500

INVESTMENT OPTIONS FOR SENIOR CITIZENS
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CATEGORY D ( WITH EXEMPTIONS AND REBATES OF TOTAL RS 4,50,000 )

INCOME	TAX UNDER OLD SCHEME	TAX UNDER NEW REGIME	DIFFERENCE
5 LAKHS	NIL	NIL	NIL
6 LAKHS	NIL	22,500	-22,500
7 LAKHS	NIL	32,500	-32,500
8 LAKHS	NIL	45,000	-45,000
9 LAKHS	NIL	60,000	-60,000
10 LAKHS	20,000	75,000	-55,000
11 LAKHS	40,000	95,000	-55,000
12 LAKHS	60,000	1,15,000	-55,000
13 LAKHS	80,000	1,37,500	-57,500
14 LAKHS	1,00,000	1,62,500	-62,500
15 LAKHS	1,25,000	1,87,500	-62,500

GREEN DENOTES NEW REGIME IS BENEFICIAL RED DENOTES OLD SCHEME IS BENEFICIAL

NOTES :
1. Senior citizens with no exemptions at all now will have tax benefit up to Rs 72,500 under the new regime compared to old one .
2. Pensioners / retirees who are having exemptions of Rs 1, 50,000 will be better off with the old scheme if their total income does not exceed Rs 9.00 lakhs . If they exceed Rs 9.00 lakhs total income , they may benefit up to Rs 27,500 as their total income increases .

3 . Senior citizens who have exemptions up to Rs 3.00 lakh and above will not have any benefit under the new regime whatever may be their income . In fact , they will lose up to Rs 62,500 under the new regime .

CONCLUSION : The new regime is made simple by removing most of the privileges senior citizens hitherto enjoying . Though it is simple , it makes most of the retirees / pensioners and other senior citizens pay higher income tax and pinches their already taxed pockets . Most of the senior citizens will say " Madam , you have your new regime with you . We are old people and we will have old scheme with us which is more comfortable "

Silver lining of the new simple regime is it is optional . So senior citizens can say no to it and opt for the old . But alas ! Their hopes of lower taxes dashed .

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