New Tax Regime FY 2020 – 2021. Simplicity… At What Price...?


New Tax Regime FY 2020 – 2021

Simplicity… At What Price?

As we move closer to yet another union budget, let us take a moment to reflect on one of the most crucial decisions of the previous budget (2020) that has impacted a large chunk of taxpayers directly; The introduction of a new tax regime.

The clamour for a revision in the existing tax slabs has been growing for long and the introduction of a new tax regime certainly appeared to have been a step taken in the right direction…. At least on the face of it…
For now, let’s reserve our judgment and delve into what this new regime has to offer.

One of the striking features of this change is the co-existence of two regimes; the OLD Regime and the NEW. This now puts the onus on the taxpayer to make an informed choice between the two regimes.

So let’s do a detailed analysis of the benefits offered by the new regime vis-à-vis the old one. We will do a comparative analysis of the two tax regimes across various income groups based on the extent of deductions availed.

General Note:

1. We have not considered any deductions under the NEW REGIME. About 70 deductions including the popular ones have been disallowed under the new Regime.

2. The New Regime does retain some benefits like home loan interest deduction for let out property and NPS deduction on employers contribution. However these have not been considered in our computations

3. The maximum salary considered is Rs.15,00,000/- as the incremental tax beyond this amount is the same under both the regimes.

4. The analysis has been presented largely from the point of view of salaried individuals. However with a few relevant adjustments, the same logic can be extended to non-salaried individuals too.

5. In case you are not aware of the tax slabs, you may click here to take a quick look.

6. click here to catch a quick glimpse of the popular tax deductions and the various scenarios considered.

COMPARATIVE ANALYSIS of the two Tax Regimes under three different practical scenarios:

Scenario-1 (No Deductions Considered):


Observation (Scenario-1): In the above scenario, No deductions have been considered while making the comparison between the two tax regimes. The illustration shared in the budget speech considered the same scenario while quoting the tax benefits offered by the new regime. However, this is a very unlikely scenario and is possible only if the tax payer has absolutely no idea of the various tax benefits available to individuals. In fact in many cases, especially that of salaried employees, a good number of benefits accrues by way of automatic deductions such as Employee Contribution towards PF, School Tuition Fee, Life insurance premium, Standard deduction, etc. Most employers provide food coupons too as part of the salary structure which is non-taxable up to a certain allowed limit. 

All of this makes Scenario 1 highly unlikely and hence not the right way to compare the two regimes. This takes us to Scenario-2 where we consider a moderate number of benefits/deductions that can be reasonably achieved by any individual in an attempt to save taxes.

Scenario-2 (Moderate Number of Deductions Considered):(80C, 80D, Meal Coupons & Standard Deduction - Total deductions considered to the extent of Rs.2,50,000/-)


Observation (Scenario-2): Scenario-2 shows us that even with moderate number of deductions availed, the old regime comes out as the preferred option especially at lower income levels. As you can notice above, the benefits accrued at lower income levels can go up to Rs.39,000/- per annum or a monthly savings of up to Rs.3,250/-. However, one would notice that the benefits subside gradually as the income goes up.

We believe that scenario-2 is quite realistic as the number of deductions considered here is moderate and can be achieved quite easily. Hence under the given circumstances, there is a strong case for one to opt for the OLD REGIME, especially at lower income levels.

Scenario-3 (High Number of Deductions Considered):(80C, 80D, Meal Coupons, Standard Deduction, Home Loan Interest, NPS 80CCD1b - Total deductions considered to the extent of Rs.5,00,000/-)


Observation (Scenario-3): Scenario-3 distinctly brings out the real difference between the two regimes. With a fairly high number of tax saving deductions under consideration, the difference between the two regimes is further amplified. The benefits under this scenario can go up to Rs.78,000/- per annum or a monthly savings of up to. Rs.6,500/-. What is even more striking is that the benefits remain intact even at higher income levels, thus proving beyond doubt that the OLD REGIME is a clear winner in this case.


The above illustrations clearly tell us that under most practical scenarios, the OLD REGIME comes out stronger than the new one. In fact, higher the number of deductions availed, the greater sense it makes to opt for the OLD REGIME.

Although the NEW REGIME has been touted as a Simpler Alternative to the old one… after looking at the analysis, our mind begs the question... "SIMPLICITY...At What PRICE?"

Note: We are writing this article towards the fag end of FY 2020 – 2021 especially for the benefit of individuals who are yet to make up their mind on the choice of a suitable tax regime. Remember, you still have some more time to make an informed choice and plan your investments accordingly.

About the author

Deepak Rameshan is a CFPCM professional, and has been working in the financial services domain for close to 13 years. He holds a Master’s Degree in Management Studies and a Diploma in Training & Development and has been actively engaged in Training & Content Development during this period. As a Personal Finance Enthusiast and an avid researcher of the subject, Deepak has delivered several Investor Awareness Workshops over the years covering areas such as Risk Planning & Insurance, Retirement & Goal planning, Tax Planning and a few other specialized areas. He takes keen interest in writing and has penned numerous articles for this blog, addressing some of the most relevant concerns that individuals face with respect to their finances.
“Financial Planning Standards Board Ltd. (FPSB Ltd.) is the proprietor of the CFPCM, CERTIFIED FINANCIAL PLANNERCM and marks outside the United States, including in India, and permits qualified individuals to use these marks to indicate that they have met FPSB Ltd.’s initial and ongoing certification requirements.”
Watch this space for more insights on Personal Finance…

Leave a Reply

Registered Office : Sushil Financial Services Private Limited., 12, Homji Street Fort Mumbai-400 001 • Tel. No. +91-22-40936000 • Fax No. +91-22-22665758 • Email:

KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary. Receive alerts on your Registered Mobile number for all debit and other important transactions in your demat account directly from CDSL on the same day. Prevent unauthorised transactions in your account Update your mobile numbers/email IDs with your stock brokers. Receive information of your transactions directly from Exchange on your mobile/email at the end of the day.

Sushil Financial Services Private Limited - Member : BSE/ NSE. SEBI Registration No. - INZ000165135. Depository Participant (CDSL) SEBI Registration No.- IN DP CDSL 194-2002. Research Analyst SEBI Registration No.- INH000000867. Distributor of Mutual funds and IPO - ARN No.77875. Sushil Capital Private Limited - NBFC No. N -13.01901

© 2020 Sushil Finance. All rights reserved.