look news india
New Delhi. The new year has started for income tax. Along with this, mails for tax saving and tax declaration have started coming from the office. This mail will be regarding choosing the income tax system. Actually, the new tax regime was introduced by the Finance Minister in the Union Budget 2020. This is also known as simplified tax regime. It offers lower tax rates with fewer deductions and exemptions than the old tax system. Income tax provisions allow a person to choose either of the two regimes. This election can be held every year.
The transition from old tax regime to new tax regime mainly depends on key factors like income level, potential tax savings, deductions, overall tax planning. Lower tax rates under the new regime could reduce tax liabilities for many taxpayers.
Estimate potential tax savings keeping these factors in mind
Speaking to Financial Express, Divya Baweja, partner, Deloitte India, says, “To evaluate whether to switch to the new tax regime or not, one should look at the income level, deductions, exemptions and applicable taxes by comparing the tax liabilities under both the regimes. Taxes should be considered. ” It is important to estimate the potential tax savings by taking the rates into account. Those who would benefit from lower taxes in the new system may find it beneficial to make the change. For example, resident salaried individuals with gross income up to Rs 7.5 lakh have no tax liability under the new tax regime. Additionally, employees with income above Rs 5 crore may benefit under the new regime due to lower surcharge.
It is important to evaluate deductions and exemptions
It is also important to evaluate the impact of deductions and exemptions available under each regime. The old system offers a lot of deductions and exemptions, while the new system offers fewer options. The usual exemptions and deductions available to salaried individuals like House Rent Allowance, Leave Travel Allowance, 80C, 80D (Medical Insurance) etc. are not available under the new regime. However, the standard deduction for salaried taxpayers and the deduction for employer contributions to the National Pension Scheme are available under both regimes.
Allowed to go back to new system only once in life
Baweja said people with income from business and profession can opt for the old system and it will be applicable for all future years. However, going back to the new system is allowed only once in a lifetime. Once they return, they become ineligible to opt for the old arrangement for any future years until their business income ceases to exist.