Friday, October 4, 2024
HomeTaxNew vs Old Tax Regime in India: Which is Better?

New vs Old Tax Regime in India: Which is Better?

The Indian government introduced a new tax regime in the Union Budget 2020-21. This new regime offers lower tax rates but also fewer deductions and exemptions. Taxpayers can choose between the new and old tax regimes each year.

Old Tax Regime

The old tax regime offers a number of deductions and exemptions that can reduce your taxable income and lower your tax liability. Some of the common deductions and exemptions available under the old tax regime include:

  • House rent allowance (HRA)
  • Leave travel allowance (LTA)
  • Medical expenses
  • Education allowance
  • Deductions for investments in life insurance, provident fund (PF), and other tax-saving schemes

New Tax Regime

The new tax regime offers lower tax rates than the old regime. However, it also offers fewer deductions and exemptions. This means that your taxable income is likely to be higher under the new regime.

Income Tax Slab Rates for New Vs Old Tax Regime

Income Slab Old Tax Regime New Tax Regime
Up to ₹3 lakh No tax No tax
₹3 lakh to ₹7 lakh 5% 10%
₹7 lakh to ₹9 lakh 10% 15%
₹9 lakh to ₹12 lakh 15% 20%
₹12 lakh to ₹15 lakh 20% 25%
Above ₹15 lakh 25% to 37% 30% to 42%

Surcharge

A surcharge is levied on income tax payable for certain income levels. The surcharge rates for the new and old tax regimes are as follows:

Income Slab Old Tax Regime New Tax Regime
Above ₹50 lakh 10% 10%
Above ₹1 crore 15% 15%
Above ₹2 crore 25% 25%
Above ₹5 crore 37% 25%

Which Tax Regime is Better for You?

To decide which tax regime is better for you, you need to compare your taxable income under the two regimes. You can use an online tax calculator to do this.

If you have a lot of deductions and exemptions, then the old tax regime is likely to be better for you. However, if you don't have many deductions and exemptions, then the new tax regime may be better for you.

Here are some general guidelines to help you choose between the new and old tax regimes:

  • Old Tax Regime: If you have a lot of deductions and exemptions, such as HRA, LTA, medical expenses, and education allowance, then you should choose the old tax regime.
  • New Tax Regime: If you don't have many deductions and exemptions, or if you have a high income, then you should choose the new tax regime.

Additional Factors to Consider

When choosing between the new and old tax regimes, you should also consider the following factors:

  • Your age: If you are a senior citizen, then the old tax regime may be better for you, as it offers a number of deductions and exemptions specifically for senior citizens.
  • Your income: If you have a high income, then the new tax regime may be better for you, as it offers lower tax rates.
  • Your investment goals: If you plan to invest in tax-saving schemes, then the old tax regime may be better for you, as it offers a wider range of deductions and exemptions for investments.

Conclusion

The best way to decide which tax regime is better for you is to compare your taxable income under the two regimes. You can use an online tax calculator to do this. You should also consider your age, income, and investment goals when making your decision

RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Recent Comments