Income Tax Slabs, Tax Rates & Calculation for 2021-22 | Old vs New - YouTube

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Namaskar, my name is Mukul, and welcome to Asset Yogi.

Recently, Budget 2020 was introduced on which we did a video and discussed all its highlights.

You can watch that video.

But with budget, there were many confusions related to Income Tax Slabs.

A new tax structure is proposed under budget 2020

in which slabs are increased but the tax rate is reduced.

With an option given to the people that

either you can follow Old Tax Structure or New Tax Structure.

But complications increased because now every individual has to calculate

whether he should follow the old or the new tax structure.

Besides this, many people asked this query in the last video that

Is the tax applicable in the 2.5-5 lakhs bracket is 0% or 5%?

So I will try to solve these complications in this video

And in the end, we'll try to arrive at a conclusion that

How much deduction should you claim in each tax bracket

So that the Old Tax Structure becomes beneficial for you.

So watch this video completely so that you can do the calculations for yourself.

Let's start.

Before starting, let me share statistics with you

Last year, 5.8 Crore people filed Tax Returns.

Among them, less than 9% of people claimed deductions of less than 2 lakhs

And less than 1% people claimed deductions of less than 4 lakhs.

So we'll try to understand that in each bracket,

how much deduction should we claim so that the Old Tax Structure becomes beneficial for us

Otherwise, maybe the New Tax Structure is beneficial for us.

With that, we'll discuss the advantages and disadvantages of old and new Tax Structures.

Let's understand the Tax Slabs inside the old and new Tax Structure.

Up to 2.5 lakhs, old as well as new, both rates are 0%.

Now people are very much confused between Rs.2.5-5 lakhs.

If your Net Taxable Income is less than Rs.5 lakhs

That means, let's say in Old Tax Structure, you do some savings and claim some deductions

And your Net Taxable Income comes Less than 5 lakhs then no tax will be applicable

In that case, you have a 0% tax rate.

Similarly, this rebate is available in the New Tax Structure as well

That means if your Net Taxable Income is under 5 lakhs, then the tax rate will remain 0%.

But if your Net Taxable Income is above 5 lakhs, let's say it is 6 lakhs.

So tax will be applicable on the portion between 2.5-5 lakhs.

Similarly on the new rate, the tax applicable will be 5% if your Net Taxable Income is above 5 lakhs.

lf your Net Taxable Income is 6 lakhs in new rateas well,

then 5% tax will be applicable on 2.5-5 lakhs and 1 lakh portion will fall in the next bracket.

I hope this difference is cleared.

In Rs.5-7.5 lakhs tax bracket, according to the old structure, the tax applicable was 20%

In fact, according to the old rate, Rs. 5-10 lakhs portion use to fall under 20% tax slab.

In the new rate, this slab is divided and now Rs. 5-7.5 lakhs fall under 10%

And 7.5-10 lakhs will fall under 15% tax slab and earlier it was 20%.

For 10-15 lakhs, the tax bracket was 30% earlier but now this is also further divided.

Rs. 7.5-10 lakhs, will fall under 20% tax, Rs. 12.5-15 lakhs will fall under 25% tax rate.

And above Rs. 15 lacks, it is 30% which is the same as earlier

But there is a catch here.

You can claim Exemptions and Deductions if you're following Old Tax Structure

But if you will follow the New Tax Structure in which interest rates are reduced

You cannot claim Exemptions and Deductions.

And sometimes, these deductions cover a large portion and save much tax.

So let's now understand the calculations that how much deductions should you claim in which tax bracket

So that you'll get the benefits.

So I created this worksheet in which you can do the calculations for yourself

You can type your gross income here and you can change all the orange color marked cells.

Here I calculated the tax amount according to the old and new rates.

For example, if we calculate the tax amount for Rs. 2.5-5 lakhs slab at 5%

Then 2.5 lakhs portion × 5% is the tax amount which is Rs. 12,500.

20% tax bracket is there for Rs.5-10 lakhs according to the old rates

So this upper 2.5 lakhs portion is Rs. 50,000 and this is Rs. 50,000.

That means Rs. 2.5 lakhs × 20% = Rs. 50,000

And Rs. 2.5 lakhs × 20% is again Rs. 50,000

Similarly, I calculated the tax amount for each bracket.

Similarly, I also calculated this amount under new rates

5% portion for 2.5 lakhs is Rs. 12,500

10% of 2.5 lakhs portion is Rs. 25,000

15% of 2.5 lakhs is Rs. 37,500,

20% is Rs. 50,000 and 25% is 62,500.

So I am considering an example

Let's calculate the tax amount for up to Rs. 15 lakhs income according to different deductions.

Here I made 5 cases. If person A claimed very less deductions.

Person B claimed medium deductions, person C claimed high deductions

And D claimed very high deductions

And E is the case where there will be a break-even between the old and new tax structures.

So we'll consider Rs. 15 lakhs as the gross income

and these are different types of deductions

For example, You get HRA Exemption, Standard Deduction of Rs. 50,000, Loss from House property

That means you get a benefit of Rs. 2 lakhs on the interest you claimed.

So here is your Gross total income.

And your various investments under section 80C like Insurance, PF, PPF, EPF

ELSS scheme, ULIP, NPS.

All these fall under 80C whose limit is up to Rs. 1.5 lakhs.

Section 80 D covers your medical insurance

So if we add all these deductions in different cases,

We'll calculate the Net Taxable Income and then we'll check our tax according to both

old as well as new tax structures.

So if someone has an income of Rs. 15 lakhs and he only claimed a standard deduction of Rs. 50,000

And he didn't claim any other exemptions

Then his Net Taxable income becomes Rs. 14.5 lakhs

So tax under old tax structure will be

According to 14.5 lakhs, he will come in the 30% bracket

because above 10 lakhs, 30% bracket is there according to the Old Tax Structure.

So I inserted this formula here but let me show you its calculation once.

We'll do some of all this portion and above 10 lakhs bracket will be according to 30%

That means 30% on Rs. 4.5 lakhs

So I am taking this portion as it is plus 0.3×4,50,000

and bracket close.

On this overall amount, 4% education cess is applied

So bracket close and multiply by 1.04

Press enter and tax according to the old tax structure is Rs. 2,57,400.

Now if we want to calculate this according to the new tax slab,

Then here we don't have any kind of exemption

So we'll check in which tax slab our income fall

So our income falling in the 12.5-15 lakhs bracket.

So I'll add all this and multiply by 1.04

Is equal to, we'll add all these, is equal to sum of

so we will add all these because we are calculating for Rs. 15 lakhs

and multiply it by 1.04 which is the education cess.

So tax according to the New Tax Structure is 1,95,000.

So are we in profit or loss?

Since we're paying less tax in New Tax Structure

so obviously we're in profit because we didn't claim any deductions.

So here we had a profit of Rs. 62,400

Hence, if a person is under this tax structure and do not claim any deductions

then he is in a good profit and he gets the flexibility to spend, save or invest his savings.

Now let's see the case of medium deductions.

If a person claims a standard deduction of Rs. 50,000

and along with that he claims Rs. 1.5 lakhs under section 80C

So if he claims a deduction upto Rs. 2 lakhs

then under the old tax structure, the tax applicable will be Rs. 2,10,600

and 1,95,000 according to the new slab.

So here also he is in a profit of Rs. 15,600.

But if a person claims high deductions.

Let's say he claims Rs. 50,000 deductions in the standard deduction

and he claims 2 lakhs under Loss From House Property

And also claims Rs.1.5 lakhs under 80C so the total he claimed is Rs. 4 lakhs deductions.

So his net taxable income is now Rs.11 lakhs and

And tax applicable according to the old tax structure is Rs. 1,48,200 and 1,95,000 in new.

So here, he had a loss of Rs. 46,800.

Similarly, if he claims very high deductions of Rs. 3,60,000 which is HRA Deduction.

People with high income like to stay in an expensive house

So maybe someone is paying Rs. 30,000 as rent

So he will claim 3,60,000 as HRA and that becomes a big portion in many cases.

Rs. 50,000 Standard deduction, Rs. 1.5 lakhs under 80C and 50,000 for medical insurance under 80D.

So in total, it becomes 2 lakhs + 50,000 + 3,60,000.

So he claimed very high deductions which is Rs. 6,10,000 in total.

In Old Tax Structure, he will pay Rs. 1,14,000 whereas in the New Tax Structure, it becomes Rs. 1,95,000

So it is a loss of Rs. 80,000.

So as we can see that if a person claims high standard deductions

Then he gets to benefit in Old Tax Structure and he won't be profitable in New Tax Structure.

But now let's see what will be the break-even point.

If I calculate the break-even point for Rs. 15,00,000

then if a person claims Rs. 50,000 standard claims, 1.5 lakhs under 80 C and Rs. 50,000 under 80D

Hence, if he claims Rs. 2,50,000 deductions in total

Then his net taxable income becomes Rs. 12,50,000

And In both the cases, the tax payable is Rs. 1,95,000.

So if the income of a person is more than Rs. 15,00,000

and if he claims total deductions of more than Rs. 2.5 lakhs

Then it becomes net 0.

So if someone is claiming deductions above Rs. 2.5 lakhs,

Then Old Tax Structure is beneficial for him.

If you want then you can also do these calculations for yourself

I'll put the link to this worksheet in the description

You can check different permutations and combinations.

But if you don't want to do any calculations then let me tell you about the break-even points.

Which you can also check

If your income is Rs. 7.5 lakhs and your deductions are more than Rs. 1.25 lakhs,

Then the Old Tax Structure is better for you.

If your income is Rs. 10 lakhs and you claim the deductions of more than Rs. 1.87 lakhs

Then also Old Tax Structure is better for you.

If your income is Rs. 12.5 lakhs, then you need to claim deductions of more than 2.08 lakhs

Then only Old Tax Structure is better for you.

If your income is Rs. 15 lakhs or more, then you need to claim deductions of more than Rs. 2.5 lakhs

Then Old Tax Structure is better for you.

Otherwise, if your deductions are less than we discussed,

Then the New Tax Structure will be more beneficial for you.

So broadly, the Old Tax Structure is better for all those who were doing savings,

investments, and claiming high deductions.

So claiming Rs. 2-2.5 lakhs deductions was not a tough task earlier also

So in that case, the Old Tax Structure will be better for all.

But if anyone who was not claiming many deductions

For example, senior citizens or you have more cash requirements in any year

And you don't want to claim deductions and didn't want to save much

In this case, New Tax Structure can be better for you

There you have more tax slabs and tax rates are also less

So when we do investments according to the Old Tax Structure,

The Lock-in period of investment is very high like 3-5 years or more than that.

So in this case, your money gets locked in.

So if your cash requirement in a particular year is more,

then New Tax Structure can be better for you.

So I tried to simplify the whole tax structure.

If you liked this video then press the like button and share it

with your friends and family members.

They might also have confusion between old and new tax structures.

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Till then keep learning, keep earning, and as always stay happy.