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Comparison of Old And New Tax Regimes

Published on Mar 9, 2023Updated on Jan 10, 2024

Comparison of Old And New Tax Regimes

Filing Income Tax Returns is a crucial yearly obligation for most taxpayers. Beyond mere compliance, filing tax returns opens up various benefits, such as accessing loans and traveling abroad. Prompt and well-informed tax filing is therefore vital. Seek proper guidance and consider all relevant factors to ensure compliance and maximize the benefits of filing taxes.

The Two Regimes: New & Old

The taxpayers in India today are spoilt by two choices between two different tax regimes. The selection of the regime will define the various steps in filing the return but ideally, the selection needs to be made much earlier as it will determine how their cash flow will be a line over the coming year. Since the individuals have two options, it becomes necessary to study both to come to a proper decision. While there is no one correct decision, the comparison between the old vs new tax regime will aid the individual taxpayer in deciding which policy is the best for them and their family.

The Old Tax Regime:

The old tax regime has seen no changes being made in the provisions in the budget and hence we have to merely study the existing provisions. The slab rates of the old regimes are as follows:

Total Income

Tax Rate

INR 0 – INR 2,50,000

Nil

INR 2,50,000 – INR 5,00,000

5%

INR 5,00,000 – INR 10,00,000

20%

Above INR 10,00,000

30%

Apart from the above, the taxpayers under the old regime get a rebate of INR 12,500 if their total income after deductions is under INR 5,00,000.

The users of the old tax regime are entitled to various deductions which include deduction under Section 80C upto INR 1,50,000, Mediclaim under Section 80D up to INR 50,000, and a deduction upto INR 10,000 on interest received from the savings account they have. They can also avail of benefits from interest deduction on home loans for upto INR 2,00,000 as well as INR 50,000 on contribution to NPS.

Taxpayers under the old tax regime have access to a variety of deductions that are not available to those under the new regime. If a taxpayer takes advantage of these benefits, they can increase their income beyond the traditional limit without being subject to additional taxes. This is particularly advantageous for salaried employees who receive HRA, Professional Tax, and other allowances, as well as business owners who can use Section 35 deductions and profit-linked deductions to lower their tax liability.

Must Read: Key Takeaways For Salaried Individuals From Union Budget 2023

The New Tax Regime

Until the current year, the old tax regime was the default regime and all the taxpayers who wanted to opt for the new regime could do so by opting for the new regime and filing the form with the Income Tax department.

Basis the amendments proposed in Union Budget 2023, the new tax regime has been made as a default one. The taxpayers have the option to select the old tax regime if they wish to use it. This is a large change that indicates the intent of the government wherein their idea is for people to slowly move to the new tax regime as compared to the old.

To encourage the same, the government has made various changes to the tax slab under the new regime. The slab rates look as follows:

Total Income

Tax Rate

INR 0 – INR 3,00,000

Nil

INR 3,00,001 – INR 6,00,000

5%

INR 6,00,001 – INR 9,00,000

10%

INR 9,00,001 – INR 12,00,000

15%

INR 12,00,001 – INR 15,00,000

20%

Above INR 15,00,001

30%

Apart from the above, the rebate under Section 87A has also been amended wherein for the Old tax-regime while it is available up to an income of INR 5,00,000, the same has been extended up to INR 7,00,000 in the new tax regime which allows the tax-payers an additional buffer of liquidity and amount upto which they don’t have to worry about their tax payments.

Over and above the increment in the rebate, the new tax regime has also seen an allowance of deduction in form of a standard deduction to salaried taxpayers to recognize the increase in the overall cost of living. This makes the new tax-regime lucrative for salaried employees with minimal investment as they don’t have to worry about any tax payment up to a higher amount.

The New Tax Regime Versus The Old Tax Regime

The selection between the new tax regime vs old is likely to remain a matter of debate as the utility of the same and the usefulness depends on the type of cash flows the taxpayer as an individual or a family has. An individual or family who can invest their taxable income in various tax-saving investment options and are doing so intending to save for the future would still find the old-tax regime to be a better scheme as it would allow them to save on taxes as well as invest for their future.

In contrast, taxpayers who had been struggling for cash flow and for whom the deductions or the forced investment into tax-saving schemes were a burden may now find relief. In the case of salaried taxpayers, it is not a high concern as the new regime v/s old regime choice can be opted for/into each year.

However, for any person with income from the business, it is a one-time and very important choice. Hence, which regime is better between old and new tax regime would depend on the person, their family as well as the kind of deductions they are currently availing.

Conclusion

What the budget does indicate is the intention of the government to slowly move to the new tax regime versus the old, which may very well see a decline in the tax-saving options or deductions available in the future. Be mindful while choosing which regime you wish to follow if you want to make the most of your income. 

Consider a Personal Loan to Meet Your Investment Commitments: A Sensible Solution

Investment commitments are important to meet, as they help you save tax and secure your financial future. Meeting investment commitments is crucial for maintaining financial stability, and failure to do so can result in lapses in insurance policies and loss of tax benefits. In case of a shortage of funds, individuals can consider applying for a personal loan to meet their investment commitments before the deadline. 

Personal loans can help you bridge the gap between your investment commitment and available funds. You may consider taking a loan after checking your eligibility, interest rates, processing fees, and other charges. Personal loans can be repaid through EMIs, and you can opt for a tenure that suits your financial situation. It is always advisable to plan your investments and expenses well in advance to avoid any last-minute stress.

You may turn to SMFG India Credit for guidance, use the personal loan eligibility calculator  to check if you are eligible and apply today.

DISCLAIMER: The above article is for your knowledge only and should not be construed as professional advice. Loans are disbursed at the sole discretion of SMFG India Credit. Final eligibility of every applicant will depend on a number of factors, including SMFG India Credit's policy at the time of loan application.

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