Old vs New Tax Regime – Which is Better for You?

Aimed at reducing the complexity of taxes and modernizing it for the new era, the new Taxing regime brought forth more tax slabs and reduced tax rates though it came at the expense of forgoing almost all of the deductions and exemptions once available.

As of today, you can choose between the old or new regime to pay your taxes – the choice is up to you.

Unfortunately, having options (while always good) also breeds something else: confusion.

As a taxpayer, both of these regimes offer plenty of provisions and chances to save your hard-earned money – money that you can then use to reinvest & make more of it. Having a good grasp of these 2 tax regimes can help you recognize all the best money-saving opportunities far more effectively.

Well, join us as we break down both of these tax regimes and tries to find out which is the best one for your specific taxing needs. Let’s go;

The New Tax Regime – Everything You Need to Know

Assuming you are well versed in the old tax regime, we think it’s best to start with a detailed introduction to the new tax regime, so it’s easier to compare.

To start, under the new regime, there are 6 new tax slabs with existing tax rates slashed on income up to 15 Lakh.

As you can see, there are considerable tax cuts to be enjoyed with the new regime here. However, as stated before, the new tax regime brutally omits the exemptions and deductions that were once allowed with the older regime.

For example, some of the major deduction benefits you won’t get if you opt for the new tax regime include; deductions offered to the salaried, house rent allowance, leave travel allowance, etc…

You will also miss out on deductions offered under section 80C for insurance premium, PPF contribution amount, 80D health insurance, and more.

You’ll also lose the ability to carry forward losses against current income, + senior citizens can’t claim standard deduction against their pensions.

Benefits Of New Tax Regime

While cutting the deductions might seem like a big annoyance, the new tax regime does come with many merits that make it still compelling.

For starters, the new regime is not compulsory, meaning that you still have the option to go back to the old regime if you desire to.

Secondly, the new regime gives the taxpayers plenty of avenues to save money without any sketchy means. You don’t have to spring for any certain “tax saving” schemes and insurances or park your money in places that don’t otherwise align with your financial goals. Just to save a bit of tax.

The new tax regime is also very simplified, both in calculation and tax processes.

Old vs New Tax Regime – Which One Should You Go for Going Forward?

Depending on the income bracket you fall in, you might find the old regime better than the new one or vice versa.

Below, we will explain it further income-wise so you’ll get a better idea of which regime to pick;

1. Income – ₹ 50000 per month (or 6 Lakh per annum)

Tax liability under the old regime – ₹ 23,400 Tax liability under the new regime – ₹ 23,400

Since there is no effective tax-saving by switching to the new regime, it is advised to stay in the old regime. By doing so, you can save the entire ₹ 23,400 by investing ₹ 50,000 during the year, or ₹ 4,100 per month.

Investments you may consider

  • ₹ 50 Lakh term plan – ₹ 6,000 to ₹ 10,000
  • ₹ 10 Lakh Health cover – ₹ 10,000 to ₹ 15,000
  • NPS – ₹ 1000 to ₹ 1500 per month
  • ELSS – ₹ 1000 to ₹ 1500 per month

2. Income – ₹ 75000 per month (or 9 Lakh per annum)

Tax liability under the old regime – ₹ 85,800 Tax liability under the new regime – ₹ 62,400

You can save around ₹ 23,400 in your tax outgo by switching to the new regime. Moreover, you can save that amount without making any tax-saving investments.

So, no extra effort is needed towards tax planning, and you would also have more money to spend during the financial year.

To make some extra savings, you could stay in the old regime and make investments worth ₹ 1.5 Lakh to save an additional ₹ 7,800 if you find that worth the effort.

Investments you may consider

  • ₹ 1 Crore term plan – ₹ 10000 to ₹ 15000
  • ₹ 20 Lakh Health cover – ₹ 15000 to ₹ 25000
  • NPS – ₹ 2000 to ₹ 3000 per month
  • PPF – ₹ 2000 to ₹ 3000 per month
  • ELSS – ₹ 4000 per month

3. Income – ₹ 1 Lakh per month (or 12 Lakh per annum)

Tax liability under the old regime – ₹ 1,63,800 Tax liability under the new regime – ₹ 1,19,600

You can save around ₹ 44,200 in your tax outgo by switching to the new regime, that too without any further tax planning moreover, since you can only save an additional ₹ 2,600 by making the complete use of section 80c deductions, bringing your tax outgo to ₹ 1,17,000.

Yes, you can claim some other deductions, but it may not be worth the effort. However, if you have a home loan, you can enjoy a substantial extra deduction on the interest amount under section 24B, which could have a major impact on your tax outgo.

So, stay in the old regime if that is the case. Else, you can consider switching to the new regime for the balance it offers for you between tax savings and lower compliance burden.

Your tax-saving investments in the former case would depend on the amount you are paying as the principal part in the EMIs for your home loan.

In most cases, that amount, coupled with a term plan and a health cover, would suffice as far as tax optimization is concerned.

4. Income – ₹ 20+ Lakh per annum

Tax liability under the old regime – ₹ 4,05,600 Tax liability under the new regime – ₹ 3,51,000

In this case, also, you would find that you can save around ₹ 54,600 by switching to the new regime.

Moreover, even after using the entire deduction limit of ₹ 1.5 Lakh under section 80c, you would be paying more tax if you stick to the old regime. Therefore, we advise you to stick to the old regime only if you are paying a significant amount as interest on your home loan.

If your home loan is about to be paid off or do not have any outstanding home loan, it’s better to switch to the new regime.

Which Tax Regime is The Right One For You?

Obviously, everyone has their own set of financial circumstances. While some may find the old regimen best for their taxing needs, others will prefer the new one and vice versa. Therefore, even with all the handy guidance, we have shared above, we recommend that you thoroughly assess all the pros and cons of both these regimens and check what works and what doesn’t work for you before taking your final stand.

If you have any doubts or concerns, please contact & we’ll surely help you. Our experts can also help you in making smart financial decisions. Just reach out…

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