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FAQ: Should you choose the new or the old tax regime?

Srishti P
·2-min read

The major highlight of the new tax regime is the lower tax rate for taxpayers. It is a simplified tax regime where the taxpayer cannot avail the deductions and exemptions available in the old regime.

Currently available as an optional scheme to individuals and Hindu Undivided Families, it was unveiled in the previous Union Budget.

With the introduction of this optional tax structure, there are various questions that emerged in the minds of taxpayers planning to switch to it. We address some of these questions here.

  • Which Regime Saves More Taxes?

Tax saving will depend on the taxable income.

For instance, you are eligible for deductions and exemptions of Rs 1.5 lakh. At an estimated annual income of Rs 8.5 lakh, your tax liability under both the regime would be the same (Rs 54,600). For income less than Rs 8.5 lakh, the old regime would yield more tax savings.

For income more than Rs 8.5 lakh, in this example, the new tax regime is beneficial. This is because the tax rate in the new regime increases at a decreasing rate, compared to the old regime.

  • What are the Differences Between the Old and New Regime?

The significant difference in the two regimes is in the tax rates.

Income Tax Slab (Rs in lakh)

New Regime

Old Regime

0 – 2.5

NIL

NIL

2.5 – 5*

5%

5%

5 - 7.5

10%

20%

7.5 – 10

15%

20%

10 –12.5

20%

30%

12.5 – 15

25%

30%

> 15

30%

30%

* tax rebate u/s 87a is available in both regimes

Another difference in the new tax regime is that the taxpayer can afford to invest less in exempted investments, which will increase the take-home income.

The maintenance and submission of tax saving paperwork applicable to the old regime is not required in the new regime.

Can I Change My Tax Regime Every Year?

Tax regime can be changed with every financial year, in case of income from salary, house property, capital gains, or other sources. In business or professional revenue, the regime can be selected only once for a particular business type.

When Should I Intimate My Employer About My Tax Regime Selection?

Intimation to the employer about the selected regime can be made at the beginning of the financial year. Once established and intimated, the regime cannot be changed during the year for TDS purposes.

However, you can switch to the other regime while filing the income tax return. In such cases, the TDS will be adjusted accordingly.

*All tax rates are for resident taxpayers below the age of 60.

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