Decoding the New Tax Regime versus the Old Tax Regime: A Comparative Analysis
Tax systems are the backbone of any economy and overall economic behaviour. Over time, tax regimes undergo revisions to align with evolving socio-economic landscapes and policy objectives.
Budget 2020, introduced a New tax regime, alongside the existing one, which created a lot of confusion among the taxpayers regarding the choice between old and new Tax regime
The Changes in the Tax regime shows that the government intends to have the shift of tax payers to new tax regime, thereby abolishing the old tax regime gradually
Though the new tax Regime continue to be the default tax regime, old tax regime still exists as an option to Taxpayers for FY 23-24, but such option is only available if the IT return is filed on or before the due date.
Points to be considered under New Tax regime.
Change in Tax Slabs: As compared to the old tax regime, tax slabs in new Tax regime are
| Upto 3,00,000 | NIL |
|---|---|
| Rs 300000 to 600000 | 5% |
| Rs 600001 to 900000 | 10% |
| Rs 900001 to 1200000 | 15% |
| Rs 1200001 to 1500000 | 20% |
| Rs 1500001 and above | 30% |
Higher Tax Rebate Limit: –Under Old Tax regime Rebate was available upto the limit of Rs 500000, this limit is increased to Rs.700000 under New Tax regime. In other words the Tax Payer with a Taxable income upto 7,00,000 will end up paying Zero Tax
Standard Deduction:-The Standard deduction available for Salary Income was only applicable under the old tax regime, however now the standard deduction is also extended to new tax regime, making it a total tax free income to rs.750000
Reduced Surcharge :- The Surchare which was initially 37% for the tax payers having a Income more than 5Crs, has been reduced to 25%.
Other Deductions:- While the old Tax regime offered various deductions from which the common deductions are Deduction u/s 80C, Deduction in respect of medical premium u/s 80D, deduction in case of disabled individual u/s 80U, Deduction in respect of Education loan u/s 80E, Deduction in respect of donation to political Party/ Trust u/s 80G, Interest on savings Bank
Both the Tax structures have their own Advantages and disadvantages, while the old tax structure encouraged people to concentrate more on Investments, while the new tax regime encourages people to earn more subject to lower tax rates.
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