‘Big Row’ on Income Tax: Are you confused in the new and old tax system? Learn what is better

‘Big row’ on income tax: As soon as the name of Income Tax comes, many types of questions begin to arise in the minds of taxpayers, especially when the new tax regime has been made a default option. Now the biggest ‘rar’ or confusion before the taxpayers is to choose the old tax regime for themselves or adopt the new one. Both have their own advantages and disadvantages, and it depends entirely on your income, investment and cuttings which will prove to be better for you.

New tax system (default regime):

• Low tax rates: The tax slab rates in the new tax system are kept comparatively low.

• Less cuts: It does not provide the benefit of many popular deductions like section 80C (eg LIC, PPF, EPF, Tuition Fee), 80D (Health Insurance), HRA (House Rent Allowance), LTA (holiday travel allowance).

• Standard deduction: Standard deduction of ₹ 50,000 is also available for salaried and pensioners.

• Simplicity: It is considered simple in terms of compliance due to low cuttings.

• Original discount limit: In the new regime, income of up to ₹ 3 lakh is tax-free, while in the old it was ₹ 2.5 lakh (different in some cases).

Old tax system:

• High tax rates (comparatively): The tax slab rates are slightly higher than the new system.

• Many cuts: Its biggest feature is the cuttings found under different sections, which reduces taxable income significantly. If you take full advantage of section 80C, 80D, HRA, home loan interest (section 24B) etc., it can be beneficial for you.

• Complexity: Documentation and calculations for this may be slightly complicated due to more cuttings.

‘Big Rar’ – Whom to choose?

This ‘rar’ is because no one system can be the best for all.

• When to choose the new revision?

  • If you do not invest more (like ₹ 1.5 lakh in 80C) or do not plan to do it.

  • If you are not eligible for large cuttings like HRA or Home Loan.

  • If you want to keep the process of filing income tax returns simple.

  • Those with low income groups or those who do not have much options to claim cuttings may find new regimen beneficial.

• When to choose the old regime?

  • If you invest a lot in various tax-saving schemes (eg 80C, NPS).

  • If you take good advantage of HRA.

  • If you have taken a home loan and want to take advantage of the discount on its interest.

  • Overall, if your total deductions (deductions) are more than a fixed range (eg ₹ 3.75 lakh or more, which can change according to income), the old system can be better.

How to decide?

The best way is to calculate your tax liability under both regime. Tax calculator is also available on the portal of the Income Tax Department, with the help of which you can easily compare. Take the final decision only keeping in mind your total income, estimated investment and deductions. Taking advice from a financial advisor can be a good step.