There are many taxpayers in our country who are currently availing of various exemptions and deductions under the Income Tax Act, 1961.
The crucial difference between the old tax regime and the new one is that the taxpayers who avail of the new tax slabs will not be eligible for any rebates or exemptions anymore.
The tax slabs under the old regime are as follows:
- No taxation if a taxpayer’s annual income is below Rs.2.5 lakhs
- Annual incomes between Rs.2.5 lakhs and Rs.5 lakhs will be charged at 5%
- For an annual income between Rs.5 lakhs and Rs.10 lakhs, an individual will have to pay 20% as tax
- If an individual’s annual income exceeds Rs.10 lakhs, a rate of 30% will be charged
Under the new tax regime, here are the tax slabs that a taxpayer will have to contend with:
- There will be no taxation if a taxpayer’s annual income is below Rs.2.5 lakhs
- If the annual income is between Rs.2.5 lakhs and Rs.5 lakhs, a taxpayer will have to pay 5% as tax
- Annual incomes between Rs.5 lakhs and Rs.7.5 lakhs will be taxed at 10%
- For individuals earning an annual income of Rs.7.5 lakhs to Rs.10 lakhs, the chargeable tax will be 15%
- A taxpayer will have to pay 20% tax if his/her annual income is between Rs.10 lakhs to Rs.12.5 lakhs
- The tax will go up to 25% if a taxpayer’s annual income is between Rs.12.5 lakhs and Rs.15 lakhs
- The highest tax slab under the new tax regime is 30% for individuals earning an annual income of Rs.15 lakhs or more
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Old Tax Regime Vs New Tax Regime – Which one should you opt for?
Choosing between the old and new tax regime is a very personal choice that depends primarily on one factor more than all the others – tax benefits. At first glance, the lower tax rates under the new regime should ideally equate to lower tax. However, this may not be the case for all. The reason is that people opting for the new regime will have to forgo all the existing tax benefits that they are claiming.
In the end, you will have to make some calculations and determine whether it is more profitable for you to claim the various tax deductions and exemptions by sticking to the old regime or to miss out on them and avail a lower interest rate under the new regime.
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Ultimately, the fact is that you will have to plan, calculate and assess whether you should shift to the new tax regime or continue with the old regime. Choose the option that helps you save more money in the long run.