The choice of whether the old tax regime or new tax regime is more beneficial for you is based on your personal financial circumstances, income level, and tax deductions or exemptions that you are eligible for. So, let us explain the key differences between the two regimes, so you can make an informed decision.
Taxpayers may claim several deductions and exemptions under the old income tax regime, such as the standard deduction, house rent allowance, medical insurance payments, interest on home loans, contributions, and so on. The deductions and exemptions available differ based on the nature of the taxpayer's spending and might possibly reduce their taxable income and, as a result, their tax payment.
On the other hand, the new income tax regime, offers lower tax rates but fewer deductions and exemptions. Taxpayers who opt for the new regime do not need to claim any deductions or exemptions, and their taxable income is calculated after applying the lower tax rates.
The new income tax regime was introduced in the Union Budget 2020 with the objective of providing taxpayers with a simplified and more transparent income tax system. Here is a comparison of the new income tax regime with the old income tax regime:
To decide which regime is more beneficial for you, you need to compare your tax liability under both the regimes.
However, taxpayers who have significant deductions and exemptions, such as those who have taken home loans, made donations, or invested in certain financial products, may find the old regime more beneficial. Generally, the new regime may be beneficial for taxpayers who do not have significant deductions and exemptions to claim, and whose income falls within the lower tax brackets.
To conclude, the new tax regime has lower tax rates but eliminates the majority of deductions and exemptions, whereas the old tax regime has higher tax rates but a variety of deductions and exemptions. The tax system chosen would be determined by the taxpayer's personal status and financial aspirations. It is recommended that you consult with a tax specialist or financial advisor who can advise you on the best solution for your particular situation.
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