Both the new income tax regime and the old tax slab offer benefits and drawbacks, but which one you select will rely on your financial status and annual income, as per the tax experts. There are several tax calculators that let you compute taxation under both tax regimes while deciding whether to adopt the old or new tax regime. The new tax regime does not allow taxpayers to claim any of the deductions and exemptions that are available under the old tax regime such as standard deduction, HRA exemption and deduction under Section 80C. Here, we have covered the old vs. new tax regimes and how taxpayers may select the appropriate one through an interview with CA Manish P Hingar, Founder @ Fintoo.
CA Manish P Hingar said “Both regimes have their own pros and cons of their own. This article will sum up the benefits as well as downsides of both regimes which will help you in choosing a suitable regime for yourself."
Let’s see what Old Tax Regime was all about:
The old regime is the one that existed all these years which comes with allowed deductions and exemptions. Tax rates in the old scheme are divided into 3 slabs which may sound on the higher side but the impact can be reduced with the help of allowable deductions and exemptions.
Most of the deductions and exemptions were to provide relief to salaried individuals. Some of the deductions are allowed alike to all who do not need any payment or expenditure. Some of the deductions need to have an amount spent or invested as prescribed in the Income Tax Law.
Let’s have a look at the allowable deductions and exemptions under the Old Tax Regime
Standard Deduction
There is a standard deduction of Rs. 50,000/- which is applicable to the individual. A standard deduction can be claimed against the salary income without any conditions or restrictions.
HRA exemption
HRA is part of any salary structure usually, which refers to House Rent Allowance. HRA can be claimed as exempt to the lower of
● Actual HRA
● 50% / 40% of Salary
● Annual rent paid less 10% of salary
● Exempted HRA would be allowed as an exemption against salary income only on submission of authentic rent receipts.
Deduction under section 80C
Deduction under section 80C is restricted to Rs.150000 which is allowable as a deduction against gross total income. Deduction under section 80C can be availed if the taxpayer invests in any of the combinations of the following savings/ investment options.
● PPF (Public Provident Fund)
● NSC (National Savings Certificate)
● 5 Years Term deposit with banks
● LIC (Life Insurance Corporation) premiums
● EPF (Employees Provident Fund)
● ELSS (Equity Linked Saving Scheme)
● ULIPs (Unit Linked Insurance Premium) etc.
Deduction under section 80D
Deduction under section 80D is allowed against investment in Medical/ Health Insurance. Payment of health insurance premiums for self and family is allowable as a deduction. However, proof of investment is required to maintained in this case also.
The tax rates under the Old Regime are as below:
Let’s now understand the New Tax Regime
The new scheme comes with totally different tax rate slabs without allowable deductions or exemptions. If any taxpayer is unable to make any tax-saving investments then the new tax scheme would definitely be a better choice.
Following are the tax rates under the New Regime
If any taxpayer opts for New Tax Regime, then he would be eligible to take benefit of these tax rate slabs. However, no deductions or exemptions prevalent under the Old Tax Regime will be allowed if any person opts for a New Tax Regime.
How to choose a suitable Tax Regime?
● First, calculate tax under the Old Regime which will require you to collect all proof of investments, etc. for claiming the deductions.
● Don’t forget to claim the standard exemption against the salary income if your employer has not considered it.
● Now calculate tax under the New Regime which will require you to simply calculate the tax on gross total income without considering the deductions or exemptions.
● Compare both Tax Regimes to understand which is beneficial for you as a taxpayer.
● You are free to choose the beneficial tax regime based on the tax-saving you make.
General Pointers
● If you have not made any investments in tax-saving instruments then it is better to calculate the tax impact under the new scheme first.
● Then calculate tax under the old scheme, assuming that you have made the proposed investments. Then it will be a reasonable base for decision-making whether to opt for the old or new tax regime.
● Usually, New Tax Scheme is better to opt for where the taxpayer revolves around a taxable income of Rs. 750,000. This is the threshold wherein the New Tax Regime may fair better than the Old regime.
● However, for taxpayers earning above Rs.10 lakhs, the Old Tax Regime is better. This is because it allows you to reduce tax incidence through deductions and exemptions.
Conclusion
There is no fair and square rule which will prescribe or suggest the tax regime which you should opt for. However, there are some tax calculators which allow you to calculate tax under both tax regimes. This would definitely help you choose a suitable choice.
This article taken by livemint.com
0 Comments