Major differences between Old and New tax regime

The comparison between the old tax regime and the new tax regime often arises in discussions surrounding fiscal policy and taxation. Both regimes represent different frameworks for how individuals or entities are taxed within a country.

Comparison:

Here are five major differences between the old and new tax regimes:

1. Tax Slabs and Rates:

   • Old Regime: Under the old tax regime, there are multiple tax slabs with varying rates based on income levels. Taxpayers can claim deductions and exemptions to reduce their taxable income within these slabs.
   • New Regime: The new tax regime simplifies the tax structure by introducing lower tax rates. It offers fewer tax slabs and eliminates many deductions and exemptions. Taxpayers are subjected to a flat tax rate without the option of claiming most deductions.

2. Deductions and Exemptions:

   • Old Regime: Taxpayers have the flexibility to claim deductions and exemptions for various expenses such as housing loan interest, medical expenses, education expenses, etc.
   • New Regime: Most deductions and exemptions available in the old regime are not applicable under the new regime. Taxpayers cannot claim these benefits, resulting in a simplified tax calculation process.

3. Simplicity vs. Complexity:

   • Old Regime: The old regime is known for its complexity due to the multitude of tax slabs, deductions, and exemptions. Taxpayers need to navigate through these complexities to optimize their tax liability.
   • New Regime: The new regime aims to simplify taxation by reducing the number of tax slabs and eliminating most deductions and exemptions. This results in a more straightforward tax calculation process, requiring less paperwork and compliance burden.

4. Flexibility vs. Transparency:

   • Old Regime: Taxpayers have more flexibility in the old regime to tailor their tax liability by strategically utilizing deductions and exemptions. However, this flexibility adds to the complexity of tax planning.
   • New Regime: While the new regime offers less flexibility in terms of deductions and exemptions, it provides greater transparency in tax calculations. Taxpayers have a clearer understanding of their tax liability under this regime, facilitating easier compliance.

5. Impact on Savings and Investments:

   • Old Regime: Certain deductions and exemptions in the old regime incentivize savings and investments. Taxpayers can reduce their tax liability by investing in specified instruments such as provident funds, insurance policies, etc.
   • New Regime: With the removal of most deductions and exemptions, the new regime may have a lesser impact on incentivizing savings and investments through the tax system. Taxpayers may need to rely more on other financial incentives to encourage saving and investment behavior.

 

What Tax regime should you choose based on your income and total deductions available to you

The first table shows your preferred tax regime if your total deductions are less than 1.5 lakhs.

The second table shows your preferred tax regime if your total deductions are between 1.5 lakhs and 3.25 lakhs.

The third table shows your preferred tax regime if your total deductions are more than 3.25 lakhs.