In the ever-evolving world of taxation, the choice between the old and new tax regimes in India has become a significant decision for individual taxpayers. Each regime comes with its set of advantages and considerations. In this article, we will delve into the key aspects of the old and new tax regimes, explore the differences, and guide you on making an informed decision based on your financial scenario.
New tax regime
The new tax regime, introduced in the financial year 2020-21, offers a simplified structure with reduced tax rates. It eliminates several deductions and exemptions available under the old regime, aiming to streamline the taxation process.
Old tax regime
The old tax regime, on the other hand, retains the conventional structure with higher tax slabs and allows for a plethora of deductions and exemptions. This system has been the norm for years, providing taxpayers with various avenues to reduce their taxable income.
Difference between old vs new tax regime: Which is better
The decision to choose between the old and new tax regimes depends on various factors, and understanding the differences is crucial. Let us explore the breakeven threshold for deciding between the two.
Breakeven threshold for deciding between new vs old tax regimes
The decision to opt for the old or new tax regime often boils down to the breakeven point, where the scales tip in favour of one over the other. This point is influenced by your total income and the deductions and exemptions that you are eligible for.
If you have income other than a salary
Tax under the old vs new regime may vary based on the nature of your income. If you have income sources other than salary, such as house property income or capital gains, the calculation becomes more nuanced.
Tax under old vs new regime
- When total deductions are Rs. 1.5 lakh or less: The new regime will be beneficial
The new tax regime becomes advantageous when your total deductions, including those under Section 80C, 80D, and others, are Rs. 1.5 lakh or less. - When total deductions are more than Rs. 3.75 lakh: The old regime will be beneficial
If your total deductions exceed Rs. 3.75 lakh, sticking to the old tax regime with its higher exemptions might prove more beneficial. - When total deductions are between Rs. 1.5 lakh to Rs. 3.75 lakh: Will depend on various income levels
For deductions falling in the range of Rs. 1.5 lakh to Rs. 3.75 lakh, the decision between old and new regimes will hinge on your specific income levels.
Deductions and exemptions allowed under the new tax regime
The new tax regime disallows certain exemptions and deductions available in the old regime. Notable exclusions include House Rent Allowance (HRA), Leave Travel Allowance (LTA), and standard deductions.
How to choose between old and new tax regimes?
Choosing between the old and new tax regimes requires a careful evaluation of your income sources, available deductions, and personal financial goals. Consider consulting a tax professional for personalised advice.
In conclusion, the decision between the old and new tax regimes depends on your individual financial circumstances and goals. Carefully analyse your income, deductions, and the breakeven threshold to determine which regime aligns with your needs. It is advisable to seek professional advice for a comprehensive understanding of your tax situation.
