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Old vs New Tax Regime Calculator in Excel

Updated: Jun 3

Old vs New Tax Regime Calculator in Excel

To help taxpayers make an informed decision, an Excel-based tax regime calculator can do wonders. This tool will assist the taxpayers in putting in their income, deductions, and all other relevant financial details to see a side-by-side comparison of their tax liability under both regimes.

 

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In this article, we will understand how to use an Excel calculator to compare the old and new tax regimes, complete with step-by-step guidance and practical examples. Be it a salaried employee, freelancer, or small business owner, this comprehensive article will help you move with ease and confidence while planning your taxes.


Old vs New Tax Regime Calculator in Excel: Understanding the Old Tax Regime


The old tax regime is one that many taxpayers are familiar with, featuring a progressive tax rate structure where the tax rates increase with an increase in taxable income. The structure is beneficial for people who have huge deductions and exemptions. 


Tax Rates under Old Tax Regime

Here are the typical tax slabs under this regime:

Tax Rates under Old Tax Regime

Additionally, there is a rebate under Section 87A for individuals with a net taxable income of up to INR 5,00,000, effectively making their tax liability zero.


Key Deductions and Exemptions


The old regime offers a range of deductions and exemptions that can significantly reduce taxable income:

  • Section 80C (up to INR 1,50,000): Investments in EPF, PPF, NSC, ELSS mutual funds, children's tuition fees, principal repayment of home loan, life insurance premiums, etc.

  • Section 80D: Deduction for medical insurance premiums paid for self and family, and additional deduction for parents' medical insurance.

  • Home Loan Interest (Section 24): Deduction on home loan interest up to INR 2,00,000 under certain conditions.

  • House Rent Allowance (HRA): Exemption based on salary structure, rent paid, and location of the rented residence.

  • Standard deduction of INR 50,000 for salaried employees and pensioners.

  • Deductions for Donations (Section 80G), disability (Section 80DD), medical treatment of specified diseases (Section 80DDB), etc.

  • Such deductions offer ample scope for tax planning by allowing the taxpayer to reduce their taxable income through various investments and expenses.


Advantages of Old Tax Regime


Following are the advantages of Old Tax Regime:


  • Maximize deductions and exemptions: For people who have made considerable investments in instruments under 80C, have a substantial home loan interest component, high HRA exemptions, or high medical insurance premiums, the old regime can offer them more tax-saving opportunities as compared to the new regime that limits the deduction.

  • Flexibility in Tax Planning: The old regime allows taxpayers to invest and make expenditures strategically in areas like health insurance premiums, education fees, and more to reduce the tax liability.

  • Higher tax savings: For taxpayers who have fashioned their income and investments to derive the maximum benefits accruable to them under the various sections of the Income Tax Act, the old regime may be more beneficial in terms of lower tax liabilities.


Old vs New Tax Regime Calculator in Excel: Exploring the New Tax Regime


The new tax regime, introduced by the Finance Ministry of India in the 2020 budget, can be considered an alternative to the conventional tax system that came with new tax slabs and rates. This system is voluntary and allows taxpayers to choose between the new and old regimes according to their financial and personal position. The new regime looks at simplifying the income tax process through lower tax rates but fewer deductions and exemptions.


Tax Rates under New Tax Regime


Here are the tax slabs under this regime:

Tax Rates under New Tax Regime

Under this regime too, taxpayers with a total income up to INR 7 lakh get a rebate under Section 87A, whereby their net tax liability becomes zero.


Deductions and Exemptions under New Tax Regime


One of the biggest limitations of this new tax regime is the reduction to a minimum of deductions and exemptions that taxpayers can claim:


  • Standard Deduction, deductions under Section 80C, which cover investments; 80D, or medical insurance; and 80E, or interest on education loans, among others, are not available.

  • HRA (House Rent Allowance), LTA (Leave Travel Allowance), and deductions for interest on housing loans for a self-occupied property are also not permissible.

  • Deductions for disability, certain specified diseases, and donations are also disallowed.

  • This simplification means that while the tax rates are lower, many taxpayers who traditionally used these deductions to reduce their taxable income may find the new regime less favorable.


Potential Benefits of New Tax Regime 


Despite the reduction in deductions and exemptions, the new tax regime also offers several potential advantages:

  • Simplified Tax Filing: The lack of a need to track and verify various investments and expenses for deductions makes tax filing simpler and more straightforward.

  • Lower Tax Outgo for Some Taxpayers: Those who do not save for tax purposes or have minimal deductions to claim may find the new regime financially better since it has lower tax rates.

  • Flexibility and Choice: The freedom of choice given to taxpayers to evaluate their situation each financial year and opt for the regime that results in a lower tax liability provides flexibility based on changing financial goals and circumstances.


Factors to Consider While Selecting the Tax Regime


While choosing between the old and new tax regimes, one has to keep in mind not only the current situation in their finances but also what consequences your actions might lead to in the future. Here's what to think about:


Long-Term Financial Impact of Choosing Between Old vs New Tax  Regime


Tax Savings vs. Financial Flexibility: While the new regime would have lower tax rates, yet it restricts the ability to claim various deductions that could save more money if one were making significant tax-saving investments. This, over time, can imply higher taxable income and possibly higher taxes paid, should your income increase manifold.


Investment Behavior: If you are an active investor in tax-saving instruments like PPF,  ELSS, or use Section 24 deductions for home loan interest, the old regime may still be more useful, considering that tax savings could compound over a period of time. Switching to the new regime might make your tax filing easier, but you may end up missing the opportunity to grow wealth through tax-efficient investments.


Importance of Considering Future Income Growth, Potential Deductions, and Lifestyle Changes


Predicting Future Income: If you foresee a large increase in income at some point, the new regime might bring higher taxes compared to the old regime, where you get to adjust deductions based on increased income.


Change in Deductions and Lifestyle: Life events, including marriage, having children, buying a home, or retirement, can impact your taxation. For example, school fees, home loan interest, and higher insurance premiums for health cover will result in significant deductions under the old regime.


Investment Habits: For someone who is consistently investing in such avenues, which provide tax deductions, it is better to stick with the old regime. On the other hand, someone with a preference for liquidity and fewer locked-in investments might find the new regime more attractive.


Professional Advice and Its Significance in Tax Planning


Complex Financial Situations: People with multiple sources of income, such as rental income, freelance income, or income from capital gains, should consult a tax professional. These cases require advice that is tailor-made for complex situations and cannot be had through software or general guides.


Tax Planning Strategies: A tax professional will be able to work out strategies for maximizing benefits under either regime, considering current laws and expected changes. They will provide you with insights into efficient tax planning, including the timing of income and deductions, which can significantly impact your overall tax liability.


Regular Review and Adaptation to Changes: Tax laws and personal circumstances change. Periodic review of your tax strategy by a professional ensures you are not just in compliance but also optimizing your tax situation as new laws come into being and personal circumstances change.


Instructions to use Old vs New Tax Regime Calculator in Excel


Follow the below steps to compute the income tax and make a comparative analysis under both the tax regime:


  1. Download the Old vs New Tax Regime Calculator Excel on your device.

  2. Provide all the details in cells marked in yellow color.

  3. The final tax payable will be calculated based on the details provided.

  4. The regime to be selected will be suggested based on the comparative analysis of the final tax payable.


The calculator is more useful for individuals having income from salaries and other sources.


Download the Google Sheet of old vs new tax regime calculator from here:


Old vs New Tax Regime Calculator Excel
.xlsx
Download XLSX • 111KB

FAQ

Q1. What is an Old vs New Tax Regime Calculator in Excel?

It is an Excel tool that helps one fill in financial details and compare the taxes owed under the old and new tax regimes to help in the identification of the best tax-saving regime.


Q2. What information is required for using an excel calculator?

Details of all your income, deductions admissible under the old regime, and all other relevant financial information, such as income from rent, capital gain, and investment details.


Q3. Is the Old vs New Tax Regime Calculator user-friendly for someone without an accounting background?

Yes, it has been designed to be user-friendly. You enter your income and deduction details; the calculator will automatically calculate your liabilities under both regimes.


Q4. Can I use it for any financial year?

The calculator is usually updated every year, as the tax rates, slabs, and deduction limits change. Ensure that the version you use matches with the present financial year.


Q5. What are the primary differences it catches between the old and new tax regimes?

The calculator will highlight the total tax payable under each regime, showing how the lack of deductions in the new regime compares against the potentially lower tax rates versus the old regime's higher rates with deductions.


Q6. Does the calculator consider all available deductions and exemptions?

Most calculators are programmed to include the more common deductions and exemptions under the old regime, such as Section 80C, HRA, and home loan interest. Check the specifications of your calculator to know whether it suits you.


Q7. Can I change the formulas in the Excel calculator?

Yes. If you have a basic knowledge of Excel, you can change the formulas to better suit your particular situation, or update it according to the latest tax laws.


Q8. What should I do if the results show little difference in tax liability between the two regimes?

If the tax liability is nearly the same under both regimes, take into account other factors such as ease of filing, expectations of future income, and financial goals before deciding.


Q9. Can I use this calculator for planning future investments?

Although mainly for calculating tax liabilities, you could use the insights from the calculator to strategize your investments, particularly under the old regime, to optimize tax savings.



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