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Which Is Better? Old (Previous) Tax Regime or New Tax Regime

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Every year, based on the income you earned in a given financial year, you are required to pay taxes. The income tax system of India is simple to understand, as taxpayers are required to pay taxes according to the tax slabs. A taxpayer simply has to check under which bracket does their income falls and then calculate the tax payable accordingly. With every annual budget, the government attempts of creating a more effective taxation system for the taxpayers.

There are two types of tax regimes in India: the existing tax regime and the new tax regime. When you are filing ITR (Income Tax Return), you can choose any one of the regimes that is convenient to you. There is no rule or compulsion that one has to select the new tax regime or the existing (old) tax regime. Take your finances of the given financial year into account to find which regime would be more beneficial for you.

The table mentioned below reflects the income tax slab of the existing income tax regime and the new income tax regime.

Taxable Income

 

Tax slabs as per the old tax regime Tax slabs according to the new tax regime
Resident individuals and HUF of less than 60 years of age and NRIs Resident individuals and HUF between 60 to 80 years of age Resident individuals and HUF who are 80 years of age and above Tax implication for all individuals and HUF
Rs.0 – Rs.2,50,000 NIL NIL NIL NIL
Rs.2,50,000 – Rs.3,00,000 5% (tax rebate available u/s 87)

 

NIL NIL 5% (tax rebate available u/s 87)
Rs.3,00,000 – Rs.5,00,000 5% (tax rebate available u/s 87)

 

NIL
Rs.5,00,000 – Rs.7,50,000 20%

 

20%

 

20%

 

10%
Rs.7,50,000 – Rs.10,00,000 20%

 

20%

 

20%

 

15%
Rs.10,00,000 – Rs.12,50,000 30%

 

30%

 

30%

 

20%

 

Rs.12,50,000 – Rs.15,00,000 30%

 

30%

 

30%

 

25%
Any amount above Rs.15,00,000 30%

 

30%

 

30%

 

30%

 

 

Please note that the tax reforms are subjected to changes from time to time. Using an online tool like an income tax calculator allows you to calculate your taxes easily within minutes. There is a marginal difference in the percentage of income taxable in the old tax regime and the new tax regime. To understand which is the beneficial regime for you, you need to analyse and compare both regimes.

The new tax regime has been created for taxpayers who are simply looking for a clear, hassle-free tax process. The reason why the tax slabs have lower rates in the new tax regime compared to the old ones is that you cannot claim any exemptions or deductions under the new tax regime. When you are filing your ITR, if you choose a new tax regime, you can get a direct advantage of a low tax rate compared to the old one. However, if you have deductions and exemptions to claim, the old tax regime would prove much more beneficial for you.

When you are choosing a tax regime, take factors like your income, source of income, the composition of income, savings, and investments into consideration. You can also use an income tax calculator to get an estimate of the tax payable through both regimes and then choose the one where you have to pay less tax. Each regime has its own sets of benefits and drawback and there is no clear best regime to choose. Instead, you should compare both of your options and choose the one where you simply save more taxes. For example, for a taxpayer who has no investments or savings, the new tax regime would be a better choice for them. On the other hand, if you have any investments or savings, the old tax regime might be a better choice. This is because, with the old regime, you can claim deductions and exemptions.

When you are filing your taxes, ensure that you consider all your sources of income and then choose the income tax slab. Also, it is essential to file the taxes before the due date to avoid paying any late fees or charges.