e-ISSN: 2582-5208

International Research Journal of Modernization in Engineering Technology and Science

Volume:02/Issue:10/October -2020 Impact Factor- 5.354 www.irjmets.com

COMPARATIVE STUDY OF NEW INCOME TAX SYSTEM WITH

OLD TAX SYSTEM
Dr. Suresh*1, Nikita Choudhary*2
*1 Assistant Professor, ABST, Govt. Girls College Jhunjhunu Rajasthan, India.
*2Research Scholar (M.Com-ABST) NET (UGC), Govt. Commerce College Sikar, India.
ABSTRACT
Tax is the very important source of revenue to the administration and one of the deciding parameter for
economic growth of a country. Tax payment is a mandatory monetary charge or some other type of duty
imposed upon an individual by government. Taxes consist of direct and indirect taxes in India and may be paid
in cash or as its labour equivalent. Where as direct tax impacts directly the disposable income. Income tax
plays a major role a source of income and an effective standard of removal of economic inequality. An
income tax is a levy imposed on individuals or entities that differ with particular income or taxable
income. The tax collected by income tax department for central government. The tax-GDP ratio of India
was 17-17.5 percent till 2018-19. The contribution of total taxes is highly substantial in India. The
government has collected Rs.7.52 lakh crore in direct taxes till the end of January of the current financial
year. Indian tax system has gone through numerous improves and still it is very far ahead from being a
perfect tax system. Many difficulties like evasion, illegal earnings, and existence of equivalent economy
reveal that Indian tax system needs some crucial reforms in the time ahead to mark all these problems. In
the following paper, the study is purely based on secondary data. Various figures are obtained from the
different websites. The present paper is an attempt to study the comparison of new income tax system with
old tax system in India and the recent reforms undertaken. In end there are few suggestions made to the
government in the interest of taxpayers.
Keywords: Direct Tax, Taxation, Tax Regime, Fiscal year, Taxpayers.
I. INTRODUCTION
Income tax department is one of the important departments of ministry of finance, Government of India.
Income tax act 1961 which became active on and from 1st April 1962. This act applies to the entire
country, including the state of Jammu & Kashmir.
With this act the income tax department began working with a new concept. Tax reform is the procedure
of remaking the process taxes are collected or controlled by the administration and is generally tackled to
upgrade tax administration or to allow economic or social benefits. Researchers and Taxpayers have long
been concerned in how possible changes and reforms to the personal income tax structure affect the
income and profit of an individual. Finance minister has suggested that personal income tax reforms
could be on the agenda. It likely useful to see restructuring of personal income tax as a systematic reform
rather than as a means of improving short-term demand. The motive of this study is to focus on how tax
changes affect taxpayers. We focus on two kinds of tax changes- reductions is personal income tax rates
and income tax reform. And we'll also know which tax slab is better for individuals in India: New Tax slab
or old Tax slab from Fiscal Year 2020-21? Honestly, this is a new query that has now been attached to the
list of ever-augmenting tax-related quandaries that Indians have. The union Budget 2020 has presented a
new tax form by slashing income tax rates and rearranging the income tax slabs to reduce total tax
liability by taxpayers. However, the option for such concessional tax regime requires the taxpayer to
forego certain specified deductions. The balance of the paper is assembled as follows. In the next section,
we discuses about review of literature relating to this topic. Section 3 discusses about difference between
Old & New Income Tax slabs. In section 4, some pros and cons provides on new and old Income tax
system. At the end of this paper concluding remarks are drawn.
II. REVIEW OF LITERATURE
Before embarking upon the research study the researcher made an attempt to review the literature on
www.irjmets.com @International Research Journal of Modernization in Engineering, Technology and Science
[321]
 e-ISSN: 2582-5208
International Research Journal of Modernization in Engineering Technology and Science
Volume:02/Issue:10/October -2020 Impact Factor- 5.354 www.irjmets.com
the subject. A huge number of studies have been conducted covering different aspects of Income tax
structure over the years. Literature review is not just a more summary of publications by other authors. It
actually demonstrates researcher understanding of different arguments, advancement and theories. A
few of them have been outlined below:
Ambirajan (1961) attemted to scrutinize the formation, advancement, authority and future expectations
of the corporate income tax in India in the content of remaking goals and abstractions that affected Indian
tax approach. He found that the corporate tax structure had a minor impact on investment structure in
corporate sector. He told that thoroughgoing tax changes were assembled only in the post libration-
period. He submitted that Indian corporate tax prices were extremely at the peak as differentiated to even
many developing countries. This study inferred that there was a vital requirement of tax improvements.
Pawan.k. Agarwal (1991) concentrated on estimating the receptiveness of income tax as an effect of
change in imbalance in the distribution earnings. The approximated flexibility 1.17 will differ with the
increase and decrease of imbalance throughout 1966-67 to 1983-84. He inferred that a rise in tax
imbalance in the distribution of earnings among the individuals raises yield of individual income tax in
India.
V Rani (2011) studied the growth of income tax earnings, presentation of income tax department and
clairvoyance of tax executives with regard to income tax structure in India. The analysis observed that
administration has attempted to attain the purpose of public assistance by furnishing several
inducements for essential things, frugality and pension plan etc. The administration has acquired definite
estimates for broadening tax form such as presentation of PAN, E-filing of income tax revenue, online tax
accounting process etc. It was also noticed that portion of direct taxes in whole tax earnings of
Government, number of income tax payers, and income tax to GDP proportion and buoyancy coefficient
appeared on rising tendency during this phase.
Sury, M.M (2013) Stated that among the various indices of ability to pay taxes, income is regarded,
by far, as the most appropriate. This is borne out by the popularity of income taxes the worlds over.
Income tax is charged on the annual remuneration of various taxable entities, mainly individuals and
companies. For operating an income tax system successfully, financial authorities, especially in
underdeveloped countries,arerequiredtoresolvevariousissues tomakeitcompatiblewiththesocio-economic
objectives of government policy. This paper examines general policy issues relevant for designing and
reshaping a suitable income tax system.
Vaneeta Rani (2014) Opinion that DTC seeks to merge and modify the law relating to all direct taxes that
is income tax, wealth and DT in order to set up an economically well organized, effectual and fair direct
tax structure which will ease optional acceptance and assist rise the tax-GDP ratio. All direct taxes have
been led under a sole code and compliance course of actions unified, which will in the end cover of actions
process for a single united taxpayer describing system. They require for OTC from discusses regarding the
complex system of semi century old income tax Act,1961, which has been modified a huge number of
times, making it incoherent to the average taxpayer.
Jayakumar and Elavarasan (2015) this paper concerns about Impact of Tax reforms among Salaried
Assessees in Tamilnadu. The purpose of the paper is detect whether and how the tax betterment affect
the level of salaried individual. Conveyance non- random sampling method was used and 100 tax payers
were returned and usable in the pilot study. This study data were analyses descriptive statistics, chi
square test and Anova test the formulate hypotheses and the significant relationship between assesses
personal information and opinion level of tax allowances. Tax payers are asked to specify their level of
agreement with a given statement by of a Liker’s five point scale. This study shows that, overall the
assesses have been negative opinion with regard to effect of Tax betterments made tax structure in India.
Piyush Kumar (2016) focused on approximating the receptivity of individual income tax in that case a
change in imbalance in the dissemination of income among the individuals rises yield of personal income
tax in the country.

www.irjmets.com @International Research Journal of Modernization in Engineering, Technology and Science

[322]
 e-ISSN: 2582-5208
International Research Journal of Modernization in Engineering Technology and Science
Volume:02/Issue:10/October -2020 Impact Factor- 5.354 www.irjmets.com
III. DIFFERENCE BETWEEN NEW & OLD INCOME TAX SLABS
Finance Minister Nirmala Sitharaman introduces the new Income Tax system for the year 2020-21. The new
income tax slabs are rather different from the old tax rates. According to the government and budget
2020 discourse, this is a step to simplify the tax system and is a step as regards the direct tax code in the
lasting. If a individual wants to utilize of the benefits of New Income Tax system, he or she needs to recall that
the offered lower tax rates will be applicable only if you are ready to give up exemptions and deductions
available under different provisions of the Income Tax Act, 1961.Taxpayer has to choose between the old
and new tax slabs. It denotes that when you choose the New Tax System, you will have to give up some
exemptions such as HRA, LTA etc. and deductions accessible under chapter VIA of the act that allow
deductions under section 80. Only under section 80CCD (2) the deduction (i.e. employee’s contribution on
account of an employee in an apprised pension scheme) and section 80JJAA (i.e for new employment) can
be affirmed. Even under section 16 the Standard Deduction (Which is currently Rs. 50,000) available to salaried
individuals. There are various others but these are the crucial ones that I could recall. Around 70
exemptions and deductions have been removed in the New Tax System.
Table-1: Here are the latest income tax slab rates financial year 2020-21
(Assessment year 2021-22)

Income up to Rs 2.5 lac NO Tax

Income Rs 2.5 lac - Rs 5 lac 5%

Income Rs 5 lac - Rs 7.5 lac 10%

Income Rs 7.5 lac - Rs 10 lac 15%

Income Rs 10 lac - Rs 12.5 lac 20%

Income Rs 12.5 lac - Rs 15 lac 25%

Income Rs 15 lac and exceed 30%

In inclusion and as was the standard prior too, the subsequent will be applicable in addition
 On the tax collection 4% education cess
 If income >Rs 50 lakh 10% Surcharge will be applicable and if income >Rs 1Cr then
Surcharge will be 15%.
Note: - If the tax schemes are proceeded, then the above new tax slabs will be applicable from 1st April 2020
to 31st March 2021.
In case anyone wish to continue claiming his/her tax deductions and exemptions, then he/she can stick with
the old tax slabs structure according (Financial Year 2019-20) income tax slab rates:
Table: 2

Income up to Rs 2.5 lace No Tax

Income Rs 2.5 lac - Rs 5 lac 5%

Income Rs 5 lac - Rs 10 lac 20%

Income Rs 10 lac - above 30%

Note: In either case, that is in both new and old tax system, if your earning is under Rs 5 laky, then due to the tax
rebate under section 87A. You don’t pay tax.

www.irjmets.com @International Research Journal of Modernization in Engineering, Technology and Science

[323]
 e-ISSN: 2582-5208
International Research Journal of Modernization in Engineering Technology and Science
Volume:02/Issue:10/October -2020 Impact Factor- 5.354 www.irjmets.com
Table-3: Here is a comparative summary between the old and new tax slabs:

Tax Slabs Old Rate New Rate

Income upto 2,50,000 No Tax No Tax

Rs 2,50,000-Rs 5,00,000 5% 5%
Rs 5,00,000-Rs7,50,000 20% 10%

Rs 7,50,000-Rs 10,00,000 20% 15%

Rs 10,00,000-Rs 12,50,000 30% 20%

Rs 12,50,000-Rs 15,00,000 30% 25%

Above Rs 15,00,000 30% 30%

And contrast old tax rates that allowed relaxation for senior citizens (60+age) and super senior Citizens
(80+ ages), the new tax system is same for all groups of taxpayers disregarding of their age.
Let’s take a few examples with distinct plots to see how deductions and exemptions or insufficiency of
them will impact taxes in both systems.
Example-1. Ankit githala earns Rs 15 lac annually and who is not using any commonly available
deductions (like sec. 80C, 24B etc.)
Old Tax Regime (Rs.) New Tax Regime (Rs.)
Net Taxable Income 15, 00,000 15, 00,000

Tax Slab Old Rates New Rates Tax(old) Tax(New)

Rs 0- Rs 2,50,000 0% 0% - -

Rs 2,50,000-Rs 5,00,000 5% 5% 12,500 12,500

Rs 5,00,000-Rs7,50,000 20% 10% 50,000 25,000

Rs 7,50,000-Rs 10,00,000 20% 15% 50,000 37,500

Rs 10,00,000-Rs 12,50,000 30% 20% 75,000 50,000

Rs 12,50,000-Rs 15,00,000 30% 25% 75,000 62,500

Rs 15,00,000 & Above 30% 30% - -

Total taxes 2,62,500 1,87,500

Cess 10,500 7500

Total Tax Need to Pay 2,73,000 1,95,000

So the difference amid the existing tax slab and new tax slab (in this case) is that in new regime Ankit can save
Rs 78,000 (Rs. 2, 73,000- Rs 1, 95,000)
But in this assumed instance, we did not look at any deduction even in the existing tax slab procedure. And that
is normally not the reality. Most of the people do use certain deduction or the other.
So let’s use a more partial example.
Example-2: Sachin earns Rs. 20 lakh annually and who completely uses the limit of section 80C, HRA of Rs
1.6 lakh, health insurance premium of Rs 17,000 and being salaried obtains a standard deduction of Rs
50,000 as well . So on an income of Rs 20 lakh, sachin obtains deduction of Rs 1.5 lakh + Rs 1.6 lakh + Rs 50,000+
Rs 17,000 = Rs 3.77 lakh. Now take a look how his tax burden changes in both tax structures.

www.irjmets.com @International Research Journal of Modernization in Engineering, Technology and Science

[324]
 e-ISSN: 2582-5208
International Research Journal of Modernization in Engineering Technology and Science
Volume:02/Issue:10/October -2020 Impact Factor- 5.354 www.irjmets.com
Old Tax Regime (Rs.) New Tax Regime (Rs.)
Net Taxable Income 16, 23,000(20lac -3.77lac) 20, 00,000

Tax Slab Old Rates New Rates Tax(old) Tax(New)

Rs 0- Rs 2,50,000 0% 0% - -

Rs 2,50,000-Rs 5,00,000 5% 5% 12,500 12,500

Rs 5,00,000-Rs7,50,000 20% 10% 50,000 25,000

Rs 7,50,000-Rs 10,00,000 20% 15% 50,000 37,500

Rs 10,00,000-Rs 12,50,000 30% 20% 75,000 50,000

Rs 12,50,000-Rs 15,00,000 30% 25% 75,000 62,500

Rs 15,00,000 & Above 30% 30% 36,900 1,50,000

Total taxes 2,99,400 3,37,500

Cess 11,976 13,500

Total Tax Need to Pay 3,11,376 3,51,000

In this case, the existing tax structure works better. The difference between the existing tax slab and new tax
slab ( in this case) is that in the new system, you end up paying Rs 39,624 more (Rs 3,51,000- Rs 3,11,376)
So basically, every person will have his/her own unique New Tax Slab Vs Old Tax Slab calculation as the
deductionsclaimedbythepersonmaybeuniquetohim/her.
IV. THE ADVANTAGES AND DISADVANTAGES OF THE NEW TAX SYSTEM
A. Pros of the new system are as follows
 High Income In-Hand: The decreased interest rates for earnings varing between 5 lakh to 15 lakh, permits
the salaried class taxpayers with extra in-hand earning. This permits the privilege to the individual to
direct ones funds consequently and also benefits taxpayers who could not invest in stated
instruments because of certain monetary or other particular reasons.
 Decreased Tax rates and decreased concurrence: The new system provides lower tax rates in
comparison of the existing or old system. In the new system many deductions and exemptions are not
available and tax filing is much easier with minimum documentation needed than the old system.
B. Cons of the new system are as follows
The new tax system does not permit the taxpayer to benefit specified deductions.
 Under Section 80C discourages the ‘savings’ custom because there will not provide any tax benefits
regarding investment schemes.
 No deductions will be available on interest paid on housing loans, in case of self occupied house
property (section 24B).
 Tax exemption on coupons for food, HRA, leave travel allowance (LTA) and standard deduction will
not be available.
V. THE ADVANTAGES AND DISADVANTAGES OF THE OLD TAX SYSTEM
A. Pros of the old system are as follows:
 Individuals get to invest in their preferred investment schemes and guided to savings for any further
event like purchase of house property, marriage and education etc. and get a benefit of deduction while
paying taxes.
 Salaried taxpayers who reside in rented house can claim for deduction benefits of HRA and Standard
www.irjmets.com @International Research Journal of Modernization in Engineering, Technology and Science
[325]
 e-ISSN: 2582-5208
International Research Journal of Modernization in Engineering Technology and Science
Volume:02/Issue:10/October -2020 Impact Factor- 5.354 www.irjmets.com
Deduction.
B. Cons of the old system are as follows
 It is very difficult for a common man to understand all the applicable deductions and exemptions out of
many deductions available.
 The investor cannot opt for any other better funds, which may be performing better than the specified
funds; investors often end up making investments without keeping in mind their financial goals just to get
a tax benefit.
 The existing tax slab rates are higher than the new tax system.
VI. CONCLUSION
As discussed above both systems have their own sets of pros and cons. The existing tax structure has
many deductions and exemptions under various sections – availing a few of these required people to
investments in stated tax-saving tools, which helped implant a good habit of investing. On conversely, the
new tax system offering people lower tax rates and lesser complications to tries to simplify the overall
process. If someone who is affirming a lot of deductions under the existing system, he/she can probably
save better staying with the same tax system, as per the computations. If any taxpayer who is looking for
flexibility in the investment options and does not want to invest in the stated entitled tools, may consider
selecting for the new tax system. It also differs based on which tax slab you are in as fine.
It is notable that, if someone is a regular salaried person then he/she can select between the new vs. old tax
system every year. Which is favourable can be acquired by the taxpayer. But if someone has any business or
profession income, then he/she will unable to switch back to the other tax system once he/she has made a
choice between old and new tax system. So, it is advisable for each individual taxpayer to do their own
calculations under both systems, before selecting to continue with the old tax system or selecting for the new
tax system. Government should increase the basic exemption limit and simplification of tax laws and rules. So
that, the economy can takes into a moral cycle of higher volume usage, extra investments, extra jobs and
higher consumption.
VII. REFERENCES
[1] 2020 ∙ New Tax Regime VS Old Tax Regime: Union Budget 2020.
[2] Amitava Chakrabarty. Feb 2020. New Income Tax Regime VS Old: What is good for you? Check
comparison.
[3] Preeti kulkarni & Khyati Dharamsi. April 2020. New Income Tax Regime VS Old: Here's why you have
to make that choice now.
[4] Chamika Kumar. 2014. A Study on Income Tax payer’s perception towards Electronic Filing. Journal
of Internet Banking & Commerce.
[5] Dr. Suresh Surana. 2020. Comparison of New Income Tax Regime with Old Tax Regime. The
Economic Times .
[6] Anders Jensen Enrico Di Gregorio.2017. “A Study on personal income tax ”The
International growth center S-41421-ZMB-1 .
[7] Research Methodology- C.R.Kothari.
[8] www.economictimes.com
[9] http://www.finanicalexpress.com
[10] http://www.businessinsider.in
[11] http://www.taxreturnwala.com
[12] http://www.thehindubusinesstime.com
[13] http://www.financialexpress.com

www.irjmets.com @International Research Journal of Modernization in Engineering, Technology and Science

[326]