New vs. Old Tax Regime: Which One Should You Choose?
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When it comes to income tax in India, individuals now face a crucial decision: stick with the old tax regime or switch to the new one. Both have their advantages and drawbacks, making it essential to understand which suits your financial goals better.
Understanding the Two Regimes
Old Tax Regime: This system allows taxpayers to claim deductions and exemptions, helping reduce taxable income. Common deductions include:
- Section 80C: Investments in PPF, EPF, ELSS, life insurance, etc. (up to ₹1.5 lakh)
- Section 80D: Health insurance premium deductions
- HRA & LTA: House Rent Allowance and Leave Travel Allowance exemptions
- Standard Deduction: ₹50,000 for salaried individuals
The old system benefits individuals who have structured their finances to take advantage of these deductions.
New Tax Regime: Introduced in 2020, the new system offers lower tax rates but eliminates most exemptions and deductions. The tax slabs are as follows:
- ₹0 – ₹2.5 lakh: No tax
- ₹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%
Which One Is Better for You?
The best choice depends on your income structure and financial habits.
Stick with the Old Regime if:
- You maximize deductions under Section 80C, 80D, HRA, etc.
- You invest in tax-saving instruments like PPF, EPF, or ELSS.
- You claim home loan interest benefits.
- You prefer long-term savings and structured tax planning.
Opt for the New Regime if:
- You don’t invest heavily in tax-saving instruments.
- You prefer a simplified tax process without paperwork.
- Your deductions and exemptions are minimal.
- Your salary structure doesn’t include HRA or LTA benefits.
Practical Example
Consider two individuals, both earning ₹10 lakh annually:
- Raj (Old Regime): He claims deductions under 80C (₹1.5 lakh), 80D (₹25,000), and standard deduction (₹50,000). His taxable income reduces to ₹7.75 lakh, resulting in a lower tax liability.
- Neha (New Regime): She pays tax on the full ₹10 lakh since no deductions apply but benefits from lower tax rates.
If Neha doesn’t utilize deductions, the new regime is simpler and potentially beneficial. Raj, however, saves more with deductions under the old system.
Final Thoughts
Choosing between the two tax regimes depends on your financial habits. If you actively use deductions and exemptions, the old regime is likely better. If you prefer simplicity and don’t rely on deductions, the new regime may work for you.
Before filing your taxes, do a quick calculation to compare the benefits. Tax planning isn’t just about saving money—it’s about making informed decisions that align with your financial goals.
Disclaimer: This article is for informational purposes only and should not be considered financial or tax advice. Please consult a qualified tax professional for personalized guidance.
Team Profile
- News Writer
- Saksham Mehta is a journalism graduate from Delhi University and a PGD student in Digital Media at IIMC New Delhi. Passionate about storytelling and news, he is a published author with Zee business. With a keen interest in analytical reporting, digital media, and financial journalism. Saksham is dedicated to making an impact in the evolving world of news and storytelling.
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