How to Choose your Tax Regime

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As a taxpayer, you have the option to choose between the old and new tax regime. The old tax regime has been in place for several years, while the new tax regime was introduced in the 2020-21 budget. Choosing between the two regimes can be a bit overwhelming, but understanding the differences can help you make an informed decision.

 

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(Old Tax Regime:

The old tax regime is based on tax slabs and rates that have been in place for several years. Under this regime, you are eligible to claim deductions under various sections of the Income Tax Act, such as Section 80C (investment in Public Provident Fund, Life Insurance, National Savings Certificate, etc.), Section 80D (health insurance premium), and Section 24 (interest on housing loan).

The tax slabs under the old regime are as follows:

  • Total Income Rate of Tax
    up to ₹3,00,000 Nil
    ₹3,00,001- ₹6,00,000 5%
    ₹6,00,001- ₹9,00,000 10%
    ₹9,00,001- ₹12,00,000 15%
    ₹12,00,001- ₹15,00,000 20%
    ₹15,00,001 and above 30%

New Tax Regime:

The new tax regime was introduced in the 2020-21 budget with an aim to simplify the tax structure and reduce the tax burden on taxpayers. Under this regime, you cannot claim deductions under various sections of the Income Tax Act, but you can avail of a lower tax rate.

The tax slabs under the new regime are as follows:

  • Up to Rs. 2.5 lakhs: Nil

  • Rs. 2.5 lakhs to Rs. 5 lakhs: 5%

  • Rs. 5 lakhs to Rs. 7.5 lakhs: 10%

  • Rs. 7.5 lakhs to Rs. 10 lakhs: 15%

  • Rs. 10 lakhs to Rs. 12.5 lakhs: 20%

  • Rs. 12.5 lakhs to Rs. 15 lakhs: 25%

  • Above Rs. 15 lakhs: 30%

The major difference between the old and new regimes is that the new regime has lower tax rates but does not allow for deductions. In some cases, taxpayers who claim several deductions under the old regime may find that they pay less tax under the old regime compared to the new regime.

How to choose between the two regimes:

To choose between the old and new tax regimes, you should first assess your tax liability under both regimes. This will help you determine which regime is better suited to your needs. If you have several deductions under the old regime, you may find that you pay less tax under the old regime compared to the new regime.

If you do not have many deductions, the new regime may be more beneficial for you as it has lower tax rates. Additionally, the new regime is simpler as you do not have to keep track of various deductions.

It is important to note that once you choose a tax regime, you cannot switch between the two during the same financial year. Therefore, you should choose the regime that is most beneficial to you based on your current financial situation.

In conclusion, choosing between the old and new tax regimes can be a bit overwhelming, but understanding the differences can help you make an informed decision. Assess your tax liability under both regimes and choose the one that is most beneficial to you based on your current financial situation.

This article has been fully generated using AI Technology, so there may be some mistakes.

 

 

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