Know how to choose an income tax regime using the I-T department's income tax calculator. Also, check break-even deduction points for an easier comparison of regimes.
The Income Tax Department has a calculator on its website, popularly known as income tax calculator that helps users compare benefits under the new and old tax regimes. The calculator displays deductions and tax savings under both regimes, making it easier for taxpayers to determine which regime is best for them. The calculator is available here.
The new tax regime is the default tax regime now in which tax rebate has been extended to income up to Rs 7 lakh and with the basic exemption limit at Rs 3 lakh.
The calculator starts with the income or salary of the taxpayer in the first column, followed by the amount deductible from gross salary in the old tax regime but not allowed in the new regime.
In the following columns, taxpayers can enter interest on self-occupied house property, income other than salary special rate income etc. Subsequently, deductions allowed under both regimes and deductions not allowed under the new regime must be entered.
The calculator will show your tax liability and tax savings that can be made under each regime side by side so that taxpayers do not have to calculate their tax liability separately and then compare it under both regimes. But to further simplify choosing between regimes, a list of breakeven deduction limits for various income brackets can help
If your deductions fall below a specific threshold, the new tax regime is better, while higher deductions above the threshold favour the old tax regime. A list of break-even points for deductions at different income levels, where the tax liability is equal under both regimes aids comparison. Income up to Rs 7.27 lakh is exempt from tax under the new tax regime, so let's check for breakeven points for taxpayers with an annual income of Rs 8 lakh.
According to Taxmann, an online income tax advisory firm, an income of Rs. 8 lakh, will require a break-even deduction sum of Rs. 1,87,500 to make tax liability equal under both tax regimes at Rs. 36,400. Simply put, the new tax regime becomes beneficial for taxpayers if his or her deduction is less than Rs. 1,87,500. Any amount of deduction above Rs 1,87,500 favours taxpayers to choose the old tax regime.
Further, if your income is Rs 9 lakh, the break-even point for deductions is Rs. 2,37,500, where tax liability will fall equal to Rs. 46,800 under both regimes. Taxpayers will only benefit from the old regime if their deductions are above Rs. 2,37,500. Similarly, for taxpayers earning an annual income of Rs. 10 lakh, the deductions required to opt for the old tax regime are 2,62,500.
If one earns Rs. 12.5 lakh annual income, once he or she has deductions up to Rs 3,12,500, the tax liability (Rs. 1,04,000) is the same under both regimes. Above that deduction level old tax regime must be chosen. For an annual income earner of Rs. 15 lakh, the new tax regime is beneficial as long as eligible deductions stay below Rs. 3.75 lakh.