- April 29, 2021
- Posted by: admin
- Category: income tax return filing
Over View:The Budget of 2020 brought quite a few changes to our tax system. The most prominent change was the introduction of the New Tax Regime. However, this New Tax System was optional. But, many taxpayers were still confused to choose between New Tax Regime Vs Old Tax Regime: Which one to Choose? New Tax Vs Old Tax Regime.
The Central government introduced a new personal income tax regime for the taxpayers in the Union Budget 2020. On one side, this new system comes with lower slab rates, and on the other, it eradicates particular deductions and claims. The other point regarding this new tax regime is that it’s optional. This proposes that you do not need to forcibly select this system of taxation. You can choose to continue with the old method, in which you can claim all the accessible deductions and exemptions amalgamated with tax-saving investments.
So, are you confused between the New Tax Vs Old Tax Regime? Are you still following the old tax regime, and are you still not clear about the new system? Is the newly introduced Tax-system more beneficial for you?
If you are facing the above problems and are questioning which method of taxation to pick, you’re not the only one. With the tax filing season going on, many salaried employees and self-employed professionals are confronted with the same worries.
To sort this indecision, let’s understand these two methods of taxation.
Old vs New Income Tax Regime
The old tax regime has different slabs of income for different age groups. It also has different exemption limits for individuals between the age group of 60 and 80 years, and persons above the age of 80 years.
Furthermore, the old method allows you to claim deductions on your tax-saving investments. Look at the tax rates given below as per the old tax regime:
|Old income slabs||Tax rates for people below 60 years||Tax rates for people between 60 and 80 years||Tax rates for people above 80 years|
|Up to Rs. 2,50,000||Nil||Nil||Nil|
|Rs. 2,50,001 to Rs. 3,00,000||5%||Nil||Nil|
|Rs. 3,00,001 to Rs. 5,00,000||5%||5%||Nil|
|Rs. 5,00,001 to Rs. 10,00,000||20%||20%||20%|
|Above Rs. 10,00,000||30%||30%||30%|
On the other hand, as per the new tax regime, the new tax rates are the same across all the age groups. The income slabs are smaller and are divided more vigorously, and there are seven separate income slabs in the new income tax regime. Look at the tax rates given below as per the new tax regime:
|New income slabs||Tax rates applicable|
|Up to Rs. 2,50,000||Nil|
|Rs. 2,50,001 to Rs. 5,00,000||5%|
|Rs. 5,00,000 to Rs. 7,50,000||10%|
|Rs. 7,50,001 to Rs. 10,00,000||15%|
|Rs. 10,00,001 to Rs. 12,50,000||20%|
|Rs. 12,50,001 to Rs. 15,00,000||25%|
|Above Rs. 15,00,000||30%|
So, as you can see, the new income tax regime steadily enlarges the tax rate from one income slab to another.
Should you continue with the Old Income Tax Regime?
The old tax method has been in place for quite some time now, and you’re perhaps more accustomed with it. However, the solution to whether or not you should select this method depends mainly on the slab in which your income occurs, and on the tax-saving investments, which you have in your portfolio.
Since this regime contains deductions involving tax-saving investments, it’s suitable to opt for this option if your portfolio contains tax-saving investments. By doing this, you can claim the whole Rs. 1.5 lakhs deduction permitted under section 80C and reduce your income tax liability drastically.
Under the old tax regime, you can also have deductions for NPS investments more than the Rs. 1.5 lakhs allowed under section 80C. You can claim a further Rs. 50,000 deduction for NPS investments under section 80CCD(1B). The old system also offers you other advantages such as HRA exemption and deductions for home loan interest up to Rs 2 lakhs.
You can adopt this tax regime if your income is low and you are capable of getting deductions offered in the old tax regime.
Should you opt for the New Income Tax Regime?
The new tax rates may be perhaps lower in some cases. So, subject to your income level, you could be charged a lower rate as per the new tax regime. For example, say your total taxable income is Rs. 7,50,000. So as per the old method, your tax rate is 20%. Whereas, as per the new tax rates, it’s only 10%. This shows you that you should opt for the new income tax regime if the rates in that come out to be lower, so your tax liability is maximized.
Moreover, since the new tax regime does not permit any deductions in tax, a person with less tax-saving investments may get more benefits from the new tax rates.You can adopt this tax rate if your income is high, and your tax liability is low in the new tax regime as compared to the old tax regime.
What are some things to keep in mind before choosing any one regime?
Before selecting from among the old and new system, it benefits to follow some bits of advice and keep some ideas in mind. Here are some suggestions to help you make a choice:
- Recognize the deductions and exemptions accessible to you.
- Ascertain your total taxable income before and after deductions and assess the tax liabilities in the old and the new regimes.
- If your liability comes the same in both the regimes, maybe you could get more benefit from the old system, which permits exemptions and deductions.
- Furthermore, consider your long-term goals and strategize your investments suitably. Keep in mind that it’s not judicious to avoid investing in tax saving options just because you’re picking the new scheme.
Before you select between the two methods of taxation, evaluate your alternatives prudently and make use of online tax calculators to decide your tax liability under each method. If you have some amount of your savings open for investments, you can choose for tax-saving investments to further decrease your tax liability in the old tax regime.
Theoretically, the new tax regime might be presenting lower tax rates and lesser technical hitches, but considering the total tax benefits that one can gain under the offered exemptions and deductions, the new tax regime doesn’t seem to give more benefit as one would end up paying a higher tax sum. In the end, the choice stays personal here.