With the unravelling of the new budget for 2023-24, the concept of tax regime re-entered the limelight. The option of new and old tax regimes has led to questions such as ‘Which tax regime is better?’ since you can now choose one over the other. The simple answer is that your ideal regime depends on your income bracket.
But before we delve into the answer to this dilemma, let’s visit the roots. You might have heard the term ‘tax regime’ being tossed around several times. But what exactly does it mean? What is the hesitation surrounding the old and new tax regimes?
Stay and read on further as we answer these essential questions for you!
The Government of India imposes an income tax on the citizens, the value of which depends on their annual income. The laws revolving around the implementation and calculation of these taxes come under the umbrella of a tax regime.
Tax regimes are altered every year with the introduction of the budget. The idea is that lower-income individuals pay lower taxes while higher-income people pay higher taxes. Hence, every tax regime is complete with separate income brackets.
For instance, any individual earning up to 2,50,000 per year is usually exempt from taxes. Beyond 2,50,000, a minor tax is levied, increasing for higher income brackets. However, individuals in the higher tax bracket also have the option to claim tax deductions using a variety of avenues like HRA and insurance policies.
Consider the example of the tax slabs specified in 2023. Starting this year, the finance minister has specified two regimes – the old tax regime and the new tax regime – for taxpayers in the country.
The old regime remains the same from last year, with taxes starting for individuals earning more than 2,50,000 per year. Opting for the old tax regime also enables you to enjoy the various tax deductions under the Income Tax Act of 1961.
But what is the new tax regime? Here are some features that differentiate it from the older administration:
Does that mean the new regime is better for you?
Not necessarily. While the new slab benefits people whose collective income is below 7 lakhs per annum, the old regime caters to higher income bracket individuals who can avail of over 70 deductions to reduce their tax liabilities.
Ultimately, it boils down to the option that helps you reduce your tax amount. So, calculate all the deductions and exemptions before making a decision!
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The new tax regime can be a great option if your income falls under 7 lakhs annually after all deductions.
Both old and new regimes have their benefits. While the former lets you take advantage of over 70 deductions to reduce tax liabilities, the latter provides significant tax relief if your total income, after deductions, comes to under 7 lakhs.
The new tax regime has 6 income brackets, with individuals earning below Rs 3 lakhs per annum not subject to any taxation. Plus, it comprises standard deductions of up to Rs 50,000. The most significant advantage is that when you opt for the new tax regime, you can enjoy tax relief if your income, along with deductions, rounds off to below 7 lakhs per annum.
While filing their income tax returns (ITR), salaried persons can change their tax regime every year.
You can choose between the old or the new tax regime every year when you file your income tax returns, as long as you have a steady income from a job or a business.
