When it comes to paying income tax in India, taxpayers have two options – the Old Tax Regime and the New Tax Regime. Choosing the right one can help you save money. Let’s break down the key differences and understand which one suits you best.
What is the Old Tax Regime?
The old tax regime has been in place for a long time and allows taxpayers to claim various deductions and exemptions. Some of the most common deductions include:
- Section 80C – Deduction up to Rs1.5 lakh on investments like PPF, LIC, EPF, etc.
- Section 80D – Deduction for health insurance premium.
- House Rent Allowance (HRA) – If you live in a rented house, you can claim HRA exemption.
- Standard Deduction – Rs50,000 for salaried individuals.
Since this regime allows several deductions, it helps reduce taxable income and, in turn, the tax payable.
What is the New Tax Regime?
The new tax regime was introduced in 2020 with the aim of simplifying tax filing. It offers lower tax rates but does not allow deductions and exemptions. Here are the tax slabs under the new regime:
| Income Slab | Tax Rate |
| Up to Rs 2.5 lakh | No Tax |
| Rs 2.5 lakh – Rs5 lakh | 5% |
| Rs 5 lakh – Rs7.5 lakh | 10% |
| Rs 7.5 lakh – Rs10 lakh | 15% |
| Rs 10 lakh – Rs12.5 lakh | 20% |
| Rs 12.5 lakh – Rs15 lakh | 25% |
| Above Rs 15 lakh | 30% |
Under this regime, deductions like 80C, 80D, HRA, etc., are not available. However, the lower tax rates benefit those who do not have many investments or deductions.
Which One Should You Choose?
The choice between the two regimes depends on your income, expenses, and investment habits.
- Choose the Old Regime if you have significant tax-saving investments (PPF, EPF, LIC, etc.) and claim deductions like HRA, 80C, and 80D.
- Choose the New Regime if you do not have many deductions and want a simple, lower tax rate.
Example Comparison
Let’s assume your taxable income is Rs 10 lakh:
- Under the Old Regime, if you claim deductions of Rs2 lakh, your taxable income reduces to Rs8 lakh, and you pay tax as per the old tax slab.
- Under the New Regime, you cannot claim any deductions, so tax is directly calculated on Rs10 lakh at lower rates.
Conclusion
There is no one-size-fits-all answer. If you have multiple tax-saving investments, the old regime might be better. But if you prefer a simpler tax structure without deductions, the new regime could work for you.
Before filing your taxes, compare both regimes using a tax calculator and choose the one that helps you save more.
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