What is Tax Regime?
The tax regime outlines the tax slabs and rates applicable to individuals based on their income. In 2020, the government introduced a new tax regime featuring lower tax rates but without most exemptions and deductions available under the old regime. Taxpayers can now choose between the old and new tax regimes, making tax planning more complex. However, with a systematic approach, selecting the right option becomes manageable.
Steps to Decide the Right Tax Regime:
List Available Exemptions: Identify exemptions like HRA, LTA, and standard deductions under the old regime.
Evaluate Deductions: Review eligible deductions such as Section 80C (investments) and Section 80D (health insurance).
Analyze Financial Goals: Choose based on your financial priorities, such as investments or savings for specific needs, instead of focusing solely on tax savings.
Tax Rates Comparison: Old vs. New Tax Regime
Old Tax Regime (With deductions and exemptions) | Total Income | New Tax Regime (Without deductions and exemptions) |
Nil | Up to ₹2.5 Lakh | Nil |
5% | ₹2,50,001 to ₹5 Lakh | 5% |
20% | ₹5,00,001 to ₹7.5 Lakh | 10% |
20% | ₹7,50,001 to ₹10 Lakh | 15% |
30% | ₹10,00,001 to ₹12.5 Lakh | 20% |
30% | ₹12,50,001 to ₹15 Lakh | 25% |
30% | Above ₹15 Lakh | 30% |
FAQs Que. Which Tax Regime is Better?
Ans: The choice depends on your income and investments. If you claim significant exemptions and deductions, the old tax regime may offer greater benefits. On the other hand, the new tax regime might suit those who prefer simplicity without using deductions.
Que: How to opt for the New Tax Regime?
For business owners: File Form 10IE once to switch to the new regime.
For salaried individuals: File Form 10IE
annually to continue with the new tax regime.
Selecting the right tax regime is a personal decision influenced by financial goals, investment patterns, and income levels.