‘But in this world nothing can be said to be certain, except death and taxes,” said Benjamin Franklin, one of the founding fathers of the United States of America. And that holds true even today.
At this time of the year, the activity in the personal taxation space heats up because the last day of filing your returns is 31 July. Filing your income tax became a bit more complicated after the new tax regime was introduced in the 2020 budget.
While the new tax regime has simplified tax structure with lower rates, the old tax regime provides several deductions like under Section 80C, Section 80D, House Rent Allowance (HRA) and so on. From assessment year 2024-25, the new regime is now the default tax regime, so if someone wants to shift to the old tax regime, one needs to opt for it.
While submitting your income tax returns, it is possible to modify the tax regime. “Salaried employees have the ability to submit their income tax returns under any tax regime, regardless of the declaration provided to employers. Every year, taxpayers have the option to transition from the old to the new tax regime or vice versa. The assessee is not obligated to submit Form 10 IEA if they do not have any business income,” says Suneel Dasari, founder and CEO, Eztax.in, a tax filing portal. They are only obligated to disclose the information in the ITR.
Choosing A Tax Regime
“For comparison between the old and new tax regime one has to compute the actual tax liability under the two regimes. This is because both regimes offer different tax deductions and exemptions and different tax rates,” says Aarti Raote, Partner, Deloitte India.
“You can estimate your total tax liability under both regimes using the ‘Income Tax Calculator.’ This tool is accessible when entering your personal information in the income tax return,” says Rahul Singh, senior manager, Taxmann.
Have A Home Loan?
“Choosing the old tax regime might make sense if you have a home loan. If you have a home loan, you can claim the following deductions under the old tax regime, which are not available under the new tax regime,” says Singh.
Principal Repayment
The principal portion of your home loan repayment is eligible for a deduction of up to Rs 1,50,000 under Section 80C, along with other eligible investments.
Home Loan Interest
You can claim a deduction of up to Rs 2,00,000 under section 24(b) on the interest paid on your home loan. “It should be noted that if the home loan is taken against properties that are let out, this deduction is also allowed under the new tax regime with no threshold limit,” says Singh
“However, it is advisable to conduct a comparison between the old and new tax regimes prior to submitting their income tax return,” says Dasari.
How To Choose
While it is important to calculate your tax liability first to choose between the old and the new tax regimes, the table below can provide you with guidance.
Income | Tax Liability as per New Regime | Tax Liability as per old Regime | Deductions needed to equalize tax liability under both the new and old tax regimes | Comments |
8,00,000 | 36,400 | 36,400 | 1,87,500 | At an income level of Rs 8 lakh, an individual will benefit in new regime if he claims deductions less than Rs. 1,87,500 |
9,00,000 | 46,800 | 46,800 | 2,37,500 | At an income level of Rs 9 lakh, an individual will benefit in new regime if he claims deductions less than Rs. 2,37,500 |
10,00,000 | 62,400 | 62,400 | 2,62,500 | At an income level of Rs 10 lakh, an individual will benefit in new regime if he claims deductions less than Rs. 2,62,500 |
12,50,000 | 1,04,000 | 1,04,000 | 3,12,500 | At an income level of Rs 12.50 lakh, an individual will benefit in new regime if he claims deductions less than Rs. 3,12,500 |
15,00,000
| 1,56,000 | 1,56,000 | 3,75,000 | At an income level of Rs 15 lakh, an individual will benefit in new regime if he claims deductions less than Rs. 3,75,000 |
All figures are in rupees Source: Taxmann
Picking a tax regime shouldn't be a guessing game! If your deductions are lower, the new regime saves you money. Otherwise, the old regime might be better.
