New Tax Regime versus Old Regime: Which One Should You Pick Now?
Upstox
3 min read • Updated: February 1, 2024, 3:27 PM
Summary
The Interim Budget for FY25 introduced no changes in taxation, leaving taxpayers to choose between the old and new tax regimes. The new regime, initiated in April 2020, offers simplicity and is ideal for individuals not invested in tax-saving options. Conversely, the old regime, with higher tax rates, benefits those planning investments, particularly for retirement. The decision hinges on factors like income, deductions, and investment plans. While the new regime simplifies documentation, the old regime allows deductions up to ₹3.5 lakh. Taxpayers must weigh these factors to optimize savings and choose the most suitable regime for their financial goals.
Key takeaways:
- No changes have been made in relation to taxation in the Interim Budget for FY25.
- The new tax regime could be suitable for people flexible with their investments and those who are not planning to invest in tax-saving options.
- The old tax regime could be beneficial for people who are planning to make investments, such as retirement funds.
On February 1, FM Nirmala Sitharaman announced the Interim Budget for the financial year 2024-25 (FY25). No changes have been made in relation to taxation in the Interim Budget for FY25. As a part of the Budget is dependent on the taxes paid by the citizens of India, it is crucial that tax is collected timely while ensuring the taxpayers are aware of the tax system and their benefits.
The government of India introduced an optional New Tax Regime on 1st April 2020 for individuals and Hindu undivided families (HUFs). The goal of this introduction was to inspire taxpayers to adopt the new tax system. During the budget announcement in the financial year 2023-24, the FM declared some amendments made to the new tax regime. However, due to these amendments, taxpayers are confused about choosing between the new and old tax regimes.
Which tax regime should you pick?
The answer to this question depends on numerous factors, including your investment plans, income slab, and deductions as well as exemptions.
First, you should evaluate your investment plans before finalising a tax regime. If you are not planning to invest in tax-saving options and are flexible with investments, then the new tax regime is suitable for you. By contrast, the old tax regime could be beneficial for you if you are planning to make investments, including but not limited to saving for retirement and/or developing a corpus for a long term because under the old tax regime you are offered deductions for the contributions made to different investment plans.
Second, under the old tax regime, the tax rates are higher than those under the new tax regime. The old tax regime could be beneficial to you if you have a lower income, whereas the new tax regime could be suitable for you if your income is higher. The income tax collected for each annual income level is presented in the table below:
Under the new tax regime, no exemptions or deductions are offered. However, with the old tax regime, you may avail a deduction of up to ₹3.5 lakh. You can avail this whole deduction in two parts: ₹2 lakh under Section 24(b) and ₹1.5 lakh under Section 80C.
Another factor you can consider while choosing a tax regime is the simplicity of the process. The new tax regime allows you to enjoy a simple documentation process as it puts an end to the need of calculating exemptions and deductions, thereby letting you file your income tax returns quickly.
Conclusion
You should always consider an option that suits your needs and investment plan the best only after considering all the specified factors here. By doing so, you can ensure good savings on your tax.