“Budget 2023’s new tax regime: A mix of flexibility and choice with potential for reduced savings. Understand the benefits and drawbacks before deciding.”
Budget 2023 has made new tax regime very attractive and, at times, confusing for every taxpayers. Governments now want majority of the taxpayers to opt for the new regime. However, there are certain pros and cons that you should consider before switching to new regime.
1. The Pros:
1. Option to Select the Scheme: Right now, we have an option to choose the scheme which is most beneficial to you. Which means the current tax regime is still in place, and we as a taxpayer still have an option to choose the best suitable one, that is either the old tax regime or the new tax regime. Gladly, the Government has not enforced compulsion to switch to the new tax regime.
2. Flexibility in investment: The new tax regime offers the flexibility to the taxpayer to invest their money as they prefer in any modes. With the new scheme, there is no obligation to invest in specific tax saving schemes and insurance plans which may not be in an alignment with our financial goals/purpose. By this our investment will not get restricted to tax saving schemes and insurance plans.
3. Reduction in taxes: With multiple tax slabs, we as the taxpayer will fit into the tax slab that best meets your yearly income.
2. The Cons:
1. Discouraging from inculcating automatic saving habits: Although the government has given us the flexibility to invest our money in any modes, this young generations are not investment savvy and hence the new regime will lower household savings by larger amount as many people will now refrain from investing in tax-free schemes. Despite an upfront reduction in the tax rate, it will affect long term savings of an individual.
The old regime was encouraging to inculcate saving habits and Investments that would serve as a passive source of income in the times of need. However, this new regime lacks automatic mechanism for instilling saving habits.
2. Some losses can’t be adjusted and carry forward: There are some losses which is not allowed to be set off against current year’s income like Loss from Property, Unabsorbed depreciation of earlier years.
3. No option for assessee having business income to go for old regime: In case of an assessee having income from business and profession, it may be difficult for them to switch back to new regime, once they drop out.
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