Old Tax Regime Vs New Tax Regime: Which should you opt for?
When it comes to decoding the direct tax laws in India, it can be an unnerving task for a lot of us. The old regime governing the tax on income in India was already a demanding task for the taxpayers just when the government decided to come up with an optional new regime of income tax introduced in the Budget 2020.
However, the government intended to offer relief by simplifying the procedure and cutting the dependency on consultants for individuals and HUF taxpayers; but the ease in the new system seems only illusive.
The latest regime came as a mixed blessing, which reduces the tax rates on the income slabs but with a condition to sacrifice most of the deductions available under the old regime. This has created the situation wherein, although the taxpayers have dual options to choose from while paying the Income-tax, they are in a muddle to decide what fits them best, mainly because of disparities in benefits and losses amongst both the regimes.
New Regime Vs Old Regime
We can opt for the New Tax Regime or Old Tax Regime at any point in time before filing the final Income tax return for that particular year. Although an employer may have considered the Old Tax Regime and has made Tax computations/deductions based on that if the Taxpayer wants to opt for the New Tax Regime he/she can do so at the time of Tax Filing. If it turns out that the Tax Payable using the New Tax Regime is less than the Tax Payable using the Old Tax Regime that was used by the employer, the Taxpayer can claim a tax refund during ITR Filing.
So let us take an example to understand clearly:
Example: Employee Name: Gauri
Gross Salary: 11,00,000 (Includes HRA of 240,000)
Interest on house Loan taken: 200,000
Interest from Savings Bank: 20,000
80C Investments: 150,000
So which regime is beneficial?
Prima facia, it can still be seen that the taxpayers who do not have many deductions to claim can opt for the new regime, and those who have substantial deductions to claim resulting in lower tax can continue with the old regime.
However, the question remains a point of bias where no straight-jacket formula can give a clear distinction between both the options in general, and it depends on case to case basis as to what fits best for a taxpayer’s benefit.
Disclaimer Note: Here I am not recommending the Old Tax Regime or New Tax regime, Our objective is to choose profitable options among these two Tax regimes, it can be achieved by doing comparative analysis.