If you were unconvinced about the new regime tax of 2020, the government has revised its terms to make it more attractive for salaried employees. The new tax brings forward reduced income tax slab rates, yet the old one still holds various exemptions and deductions.
So if you're struggling with picking the right income tax regime for the year, take a closer look at the old and new tax regimes and learn about the factors supporting an informed decision.
Before we delve into the tax regimes, note that the new tax regime has become the default option, but the old one also exists.
The new tax regime of Budget 2020 was not much appreciated because of its issues with exemptions and deductions. As a result, the government in the Budget of 2023 introduced certain changes to encourage the adoption of the new regime tax. These are:
1. Higher Limit of Tax Rebate: The old tax regime offers INR 5,00,000 tax rebate, whereas the new policy states exemption from paying income tax for employees with up to INR 7,00,000 salary.
2. Streamlined Tax Slabs: The maximum amount of income that is not chargeable have been increased to INR 3,00,000, and the new tax slabs are:
3. The standard deduction of INR 50,000, which was available only under the old tax regime, has also been extended to the new one. Those receiving family pension further are allowed to claim a deduction of 1/3rd or INR 15,000 of the pension.
The old income tax regime is popular because of 70 exemptions and deductions, including LTA and HRA. Among these, the most sought-after deduction is Section 80C which ensures a reduction of INR 1,50,000 on taxable income.
To opt for the right tax regime, the person first should calculate his total income. They must secondly evaluate the number of tax-saving investments they have made. Further, carry forward losses and availability of HRA benefits are two vital factors.
Besides, they must note that the tax as per the new regime and the old have their benefits and shortcomings for the salaried employees, such as:
Remember that once the regime has been finalised, it can only be changed in the next financial year.
To sum up, the choice is yours that you must make after carefully considering your income levels, investment goals, applicable tax rates, etc.
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Salaried employees can opt for a new tax regime while the choice of an old tax regime is also available for them.
Those with income up to INR 7,50,00 or very high income up to INR 5,00,00,000 plus will benefit better from the new tax regime.