The ITR filing or the so called ‘Tax season’ is always a time which create a lot of confusion for many individuals. During this period, the perennial debate that comes to one’s mind is: Which tax regime is more better – the old or the new tax regime?
With the ITR filing deadline of July 31 approaching fast, here is the breakdown of the difference between the two tax regimes in India – ‘The Old and The New’, to help you understand the basic difference between the two and which might be better for you.
The Old Familiar Path – Old Tax Regime
Before the introduction of the new tax regime in India, for many years, the old tax regime has been the known route for many taxpayers in the country offering a structured approach with familiar tax slabs and a plethora of deductions and exemptions. Here is what the tax slab offers:
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The Old Familiar Path – Old Tax Regime |
Furthermore, the old tax regime has various deductions and exemptions, which offers a wide range of tax saving options, such as investments in Public Provident Fund (PPF) and Employee Provident Fund (EPF) to insurance premiums and house rent and so on.
Some of its popular deductions and exemptions among them are as follows:
- Deduction up to Rs 1.5 lakh for investments in PPF, EPF, LIC, etc. - Section 80C
– Deduction up to Rs 25,000 for health insurance premiums - Section 80D
The old tax regime has various deductions and exemptions which offers a wide range of tax saving option | Representative
– Deduction up to Rs 50,000 for education loan interest - Section 80E
- House Rent Allowance (HRA) – Partially or fully exempt based on actual rent paid
- Standard Deduction of Rs 50,000
Moreover, the old tax regime offers a tax rebate, i.e an individual with an income of up to Rs 5 lakh are eligible for this rebate of up to Rs 12,500, reducing their tax liability to zero.
The New Simplified Route: The New Tax Regime
In an effort to simplify the tax process for taxpayers, the new tax regime aims to reduce the number of deductions and exemptions while offering lower tax rates. Here is what the tax slab features:
Tax slab of the new tax regime |
When was the new tax regime introduced?
This new tax regime was introduced by the Indian government in the Budget 2020 presented by the then Finance Minister Nirmala Sitharaman.
With a new simplified tax route, the new tax regime offers the taxpayer of the country an alternative to the old tax regime, offering them the option to choose between the two system.
The new tax regimes simplifies the process by eliminating most of the deductions and exemptions and can sometimes be called a double-edged sword, i.e on one hand, it reduces the hassle of keeping track of investments and expenses and on the other hand, it means missing out on potential savings through deductions.
With the July 31 deadline approaching fast, evaluate your options and choose the path that leads to best savings for you. | Representative Image
This means that the new tax regime does not offer most of the deductions and exemptions that are available under the old regime, including Section 80C, 80D, 80E, and 80G.
About the tax rebate in the new tax regime, the government of India in the Budget 2023, announced a new provision for individuals opting for the new tax regime. Those with a taxable income up to Rs 7 lakh will be eligible for a tax rebate of Rs 25,000, effective from April 2023.
This is the basic difference between the two tax regimes. With the July 31 deadline approaching fast, evaluate your options and choose the path that leads to the best savings for you.
Moreover, consider your income, expenses, investments, and comfort with the tax filing process when choosing your regime. Similarly, you can switch between the two regimes every financial year if you are a salaried individual, so you can always reassess your decision annually.
