What are the variations between the previous and new tax regimes? | Query of Cash by Aarati Krishnan| Episode 34

Do you know that every one the earnings tax concessions introduced by the FM in current budgets had been relevant solely to the brand new tax regime? Within the 2020 finances, the FM introduced her intention of flagging off a brand new system of earnings tax, the place the slabs could be liberal and charges could be low, however taxpayers won’t be granted too many exemptions. This was known as the brand new tax regime. With impact from April 1 2024, all taxpayers are routinely assumed to be selecting the brand new tax regime. If you wish to stick with the previous one, you will want to go for it earlier than submitting your return for the 12 months.  

Decrease charges  

The principle distinction between the previous and new tax regimes by way of the tax charges. Revenue of upto  ₹ 3 lakh a 12 months enjoys zero tax underneath the brand new regime, whereas the restrict is  ₹ 2.5 lakh underneath the previous regime. Revenue of upto  ₹ 7 lakh is tax-free since you get a tax rebate underneath the brand new regime. Below the previous regime, the rebate applies solely upto  ₹ 5 lakh.  The speed of tax you pay for earnings upto  ₹15 lakh a 12 months can be decrease underneath the brand new tax regime in comparison with the previous one.   For folk incomes greater than ₹5 crore a 12 months, the previous tax regime imposes a surcharge of 37 per cent on prime of the earnings tax they pay at 30 per cent. Within the new regime this surcharge in capped at 25 per cent.  

Fewer exemptions  

In return for having fun with decrease tax charges underneath the brand new regime, the federal government expects you to surrender a bunch of tax breaks. Below the previous tax regime, you get to deduct a bunch of allowances out of your employer and bills out of your earnings for the calculation of tax.  On allowances, the previous tax regime means that you can deduct Depart Journey Allowance (LTA) and Home Hire Allowance (HRA). Below the brand new regime you may’t declare these deductions.  

On investments, the previous tax regime once more presents a number of exemptions which aren’t accessible underneath the brand new regime. Part 80C of the IT Act says that if you happen to contribute to submit workplace schemes, EPF or NPS or make investments upto  ₹1.5 lakh a 12 months in life insurance coverage premiums, pension, ELSS schemes that’s stored out of your earnings for tax functions. Part 80C doesn’t apply to the brand new regime. The extra  ₹50,000 that you may contribute to NPS underneath part 80CCD(1) and (1B) can be exempted underneath the previous regime however not underneath the brand new one.  

If in case you have purchased a house with a mortgage or plan to take action, once more the previous tax regime could be much better for you. Below the previous regime, each the principal reimbursement and curiosity funds of upto  ₹ 2 lakh a 12 months for a self-occupied house are allowed as deductions from earnings to calculate tax. The brand new regime doesn’t permit both.  Deduction in the direction of medical health insurance premiums, remedy of sure diseases, upkeep of disabled members of the family and so on take pleasure in exemptions underneath the previous regime however not underneath the brand new one.  

How do you select between the previous and new tax regimes?

Now that you understand what you stand to realize or lose underneath the brand new tax regime, do you have to stick with it?  Nobody can provide a blanket suggestion on this and your resolution will rely in your earnings and financial savings habits.    Often, the brand new tax regime will show higher than the previous one you probably have the next attributes: 

– You study lower than or equal to  ₹ 7 lakh a 12 months 

– You’ll be able to’t make investments  ₹ 1.5 lakh in 80C devices or  ₹ 50,000 in NPS yearly 

– You don’t have a house mortgage on which you might be claiming curiosity exemptions 

– You don’t have a big outgo in the direction of medical health insurance or medical remedies  

If doubtful, use this calculator provided by the IT division to seek out out which regime minimises your tax outgo.  

https://incometaxindia.gov.in/Pages/tools/115bac-tax-calculator-finance-act-2023.aspx 

(Host: Aarati Krishnan, Producer & Edits: Anjana PV, Digicam: Bijoy Ghosh and Amitha Rajkumar)