6 min read
Updated on Feb 28, 2023
In the budget for the 2020-21 fiscal, the central government introduced a new personal income tax regime for the individual taxpayers. So, it is but natural that there would be a comparison of new tax regime vs. old. This is a concessional tax regime but it comes with a cost as well. It needs you – the taxpayer – to let go of certain deductions. This includes a standard deduction of 50,000 rupees, a deduction of 1.5 lakh rupees under Section 80C of the Income Tax Act, 1961, and the interest of 2 lakh rupees that you get on self-occupied properties. The thing is that most taxpayers in India are availing of these.
This is the reason why the experts expect that the new concessional regime might not be beneficial for every taxpayer. So, when you think of the difference between new and old tax regime this is something that you must keep in mind. In terms of tax savings, the maximum amount that you can get in the new regime is 75,000 rupees. The concessional tax rate regime introduced in the domain of corporate taxes the tax rates have been reduced across all the income levels. However, the new personal tax regime provides only limited reductions.
It will be mainly beneficial for people in the lower-income brackets. This is an important point when it comes to understanding the difference between old tax regime and new tax regime. In the new regime, the highest personal income tax rate is 42.7% and this is going to be a major challenge for the HNIs (high net worth individuals).
Also Read: Income Tax Saving Investments
The new regime comes with several advantages. Here the compliance and tax rates are lower. In the new regime, you get concessional tax rates with regards to the tax rates in the old regime.
With the new plan, the investors might shy away from locking in funds in certain prescribed instruments for specified periods. In the new regime, all the taxpayers would be regarded at par and one cannot avail tax exemption through allowances and deductions. As a taxpayer, the new regime provides you with greater liquidity. Thanks to the reduced tax rate the taxpayers would have higher disposable income. Here you also have the flexibility to customize the investment instruments of your choice. Keep these points in mind while comparing the new tax regime vs. old income tax slab.
The cons of the new plan may be mentioned over here too. In the new regime, you do not have some specified tax deductions such as leave travel concession, house rent allowance, special allowances provided in Rule 2BB like children education allowance, allowances to MPs (members of parliament) and MLAs (members of legislative assembly), and allowance to club the income being made by minors in a family. They would not get exemptions granted to SEZ (special economic zone) units as per Section 10AA. So, when it comes to tax comparison old vs. new these are the points that are noteworthy.
When you think of the advantages of the old regime the first point that comes to your mind is the way it enforced investments in various tax-saving investments. This inculcated a culture of saving money among the individual taxpayers in the country. The money that they saved this way was used to finance major events of one’s life such as marriage, buying real estate, pursuing higher education, and meeting medical expenses. It is expected that in the new regime the savings rate of common people would decrease.
However, this would also revive the cycle of demand and consumption. So, this is a major difference between new and old tax regime. In terms of the disadvantages, the savings instruments specified for tax saving in the old regime are not ideal for millennial investors because of the lock-in periods, which in most cases range between three and five years. They cannot keep their money locked in for such long periods. Even if other star-rated funds are performing the investors cannot opt for them since they are not specified in the old regime. The ones that are specified are risk-averse but they do not yield the high returns that investors are looking for.
In the old regime, you also have to furnish various proofs of investment and other such documents to the tax authorities. They are not necessary in the new regime. This is also an important point of difference between old tax regime and new tax regime.
|Annual Income (Rs.)||Old Tax Rate||New Tax Rate|
|Up to Rs. 2.5 lakhs||Nil||Nil|
|Rs. 2.5 lakhs to Rs. 5 lakhs||5%||5%|
|Rs. 5 lakhs to Rs. 7.5 lakhs||20%||10%|
|Rs. 7.5 lakhs to Rs. 10 lakhs||20%||15%|
|Rs. 10 lakhs to Rs. 12.5 lakhs||30%||20%|
|Rs. 12.5 lakhs to Rs. 15 lakhs||30%||25%|
|Rs. 15 lakhs and above||30%||30%|
Well, we have already done a tax comparison Old Income Tax Slab vs. New Income Tax Slab for you and we hope that it would be helpful for you as well. Still, you must evaluate both regimes before you make any choice in this regard.
You should know that the exemptions and deductions that were available in the earlier regime would not be so in the new one. This is a critical point when it comes to a comparison between the new tax regime vs. old. What are you looking for as a taxpayer – flexibility in investment choices? Do you not want to invest in the specified eligible instruments that are eligible for income tax deductions and exemptions? In that case, you can go for the new regime. However, it is still advisable that you compare both analytically and evaluate them well.
After all, you have to choose one that works the best for you. We hope that by now you already know the various areas of difference between new and old tax regime. It is based on a comprehensive evaluation and analysis that you should decide whether to opt for a new one or continue with the old one. Please note that in this case, you can choose whichever one you like each year. This means that you can adopt any regime that you feel suits you the best. However, this does not apply to people who are earning from a profession or business.
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The new income tax regime was introduced in the Union Budget of 2020 and allows individuals to choose between two tax regimes - the old tax regime and the new tax regime. The old tax regime allows individuals to claim various tax deductions and exemptions, whereas the new tax regime has lower tax rates but does not allow for most tax deductions and exemptions.
The answer to this question depends on an individual's specific financial situation. In general, if an individual is eligible for a lot of tax deductions and exemptions, then the old tax regime might be better for them. However, if an individual's income is mostly from salary and they do not have many tax deductions or exemptions, then the new tax regime might be better for them.
Yes, an individual can choose between the old and new tax regimes every year when they file their income tax returns. However, if an individual has income from a business or profession, they will have to stick with the same tax regime for the entire financial year.
Some of the tax deductions and exemptions that are not allowed in the new tax regime include standard deduction for salaried individuals, deduction for investments made under Section 80C, 80CCC, and 80CCD, deduction for interest paid on housing loan, deduction for medical insurance premium, deduction for donations made to charitable institutions, and others.
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