Choosing the more tax-save regime can significantly impact your final tax payable. In India, you have the option to select at the time of your tax filing under the old or the new tax regime. For Some people the New scheme is good, but for those who have investment and savings in big number then old scheme is best. This blog will guide you through understanding these Old Vs New Tax scheme to maximizing your tax savings.
Understanding the Tax Regimes
Old Tax Regime
The traditional old tax regime offers various deductions and exemptions under sections like 80C, 80D, and others. These deductions help reduce your taxable income, leading to lower tax outgo. Common deductions under this regime include:
- Section 80C: Investments in instruments like Provident Fund (PPF),Public Provident Fund (PPF), National Savings Certificates (NSC), Equity Linked Savings Scheme (ELSS), and life insurance premiums.
- Section 80D: Premiums paid for medical insurance.
- Section 80DDB: Medical expenses on the critical illness
- Section 24(b): Interest on home loan.
- Section 80E: Interest on education loan.
- House Rent Allowance (HRA), Leave Travel Allowance (LTA), and other such exemptions.
New Tax Regime
Introduced in 2020, the new tax regime offers lower tax rates compared to the old regime but comes with minimal deductions and exemptions. The key feature of the new regime is its simplicity, where you pay tax on the total income without the need for various calculations for deductions and exemptions. However, under this regime, only the contribution through the employer towards the National Pension Scheme (NPS) under Section 80CCD(2) is eligible for deduction.
New Tax Regime is the Default Regime
In the Income-tax system (Incometax.gov.in), the New Tax Regime is enabled by default. If you want to opt for the new regime while filing ITR 1 or 2, you can select the opt-out option within the due date. For filing ITR forms 3, 4, or 5, you must file form 10-IEA before the due date to choose the Old Tax Regime.
Choosing the Right Regime
The best regime for you depends on your individual circumstances. Here are some factors to consider:
Total Income
If you have significant deductions and exemptions (such as home loan repayments, medical insurance premiums, etc.), the old regime might be more beneficial. For example, if you can fully utilize deductions under Section 80C, the old regime could result in lower taxable income and therefore, lower taxes.
Investment Habits
If you don’t utilize the full deduction limit under Section 80C or don’t claim many exemptions, the new regime’s lower tax rates might be attractive. This is especially true for individuals who prefer not to lock their money in long-term investment schemes just to save taxes.
Income Level and Tax Rates
Compare the income slabs and tax rates of both regimes:
- Old Tax Regime:
- Up to ₹2.5 lakh: Nil
- ₹2.5 lakh – ₹5 lakh: 5%
- ₹5 lakh – ₹10 lakh: 20%
- Above ₹10 lakh: 30%
- New Tax Regime:
- Up to ₹2.5 lakh: Nil
- ₹2.5 lakh – ₹5 lakh: 5%
- ₹5 lakh – ₹7.5 lakh: 10%
- ₹7.5 lakh – ₹10 lakh: 15%
- ₹10 lakh – ₹12.5 lakh: 20%
- ₹12.5 lakh – ₹15 lakh: 25%
- Above ₹15 lakh: 30%
Planning for Tax Savings
Here are some tips for maximizing your tax savings, irrespective of the regime you choose:
Review Tax-Saving Investments
Explore options like Public Provident Fund (PPF), Equity Linked Saving Scheme (ELSS), National Pension Scheme (NPS), etc., that offer tax deductions under Section 80C.
Claim All Deductions
Don’t miss out on deductions for medical expenses, home loan interest, education loan repayments, etc. For instance, Section 80D allows deductions on health insurance premiums for self, spouse, and dependent children, which can substantially reduce taxable income.
Consult a Tax Advisor
A professional tax advisor can help you analyze your situation and recommend the most suitable tax regime and tax-saving strategies. Their expertise can be particularly valuable in understanding the nuances of each regime and identifying which option results in lower tax liability.
Expert Tax Guidance
For personalized advice on choosing the right tax regime and optimizing your tax savings, contact Team N Filings, a team of experienced tax advisors. Their expertise can ensure you navigate the complexities of tax filing and minimize your tax burden.
Choosing between the old and new tax regimes can be a crucial decision impacting your financial health. By understanding the differences, evaluating your personal financial situation, and planning accordingly, you can make an informed decision that optimizes your tax savings. Remember, you can choose the option which provides more tax savings for you while filing your ITR return from us.
For any further tax interpreations or clarification, you can reach out to Prakasha & Co., Bangalore’s leading legal and tax advisory services.
very informative on the new tax regime or old tax scheme, to choose from tax savings. thanks for this.
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