Your choice between the Old and New Tax Regimes should reflect your financial strategy and investment goals, notes Ramalingam Kalirajan
India's income tax framework allows taxpayers to select between two regimes -- the Old Tax Regime and the New Tax Regime.
Recent updates, particularly in Union Budget 2024, have introduced changes aimed at simplifying the process while redefining tax-saving opportunities. Let's dive into the key highlights and details to help you make the right choice.
New Tax Regime Highlights
The New Tax Regime is now the default option. It offers simplified tax slabs and fewer deductions, making tax compliance easier.
Revised Slab Rates Under the New Regime:
- Income up to Rs 300,000: Nil
- Rs 300,001 to Rs 600,000: 5 per cent
- Rs 600,001 to Rs 900,000: 10 per cent
- Rs 900,001 to Rs 1,200,000: 15 per cent
- Rs 1,200,001 to Rs 1,500,000: 20 per cent
- Above Rs 1,500,000: 30 per cent
Perks and Limitations
- Rebate for Incomes Up to Rs 700,000: Taxpayers with incomes up to Rs 700,000 pay zero tax under this regime due to rebates.
- Standard Deduction: Salaried individuals benefit from a standard deduction of Rs 75,000.
- No Deductions: Investments like PPF, ELSS, and home loan interest deductions are excluded.
Old Tax Regime Highlights
The Old Tax Regime is ideal for those who prefer leveraging deductions and exemptions.
Slab Rates Under the Old Regime:
- Income up to Rs 250,000: Nil
- Rs 250,001 to Rs 500,000: 5 per cent
- Rs 500,001 to Rs 1,000,000: 20 per cent
- Above Rs 1,000,000: 30 per cent
Advantages
Deductions under Sections 80C, 80D, and more are available, making it suitable for those who actively plan tax-saving investments.
Capital Gains Tax Updates
In Budget 2024, the government redefined capital gains taxation. The new rates are effective for sales post July 23, 2024:
How to Choose the Right Regime?
- Old Regime: Ideal for those with investments in tax-saving instruments, such as PPF, EPF, or housing loans
- New Regime: Best for those who prioritise simplicity and fall into the lower tax brackets
Key Considerations:
Switching between regimes is allowed annually for salaried individuals but limited to once in a lifetime for taxpayers with business or professional income.
Compare tax liabilities under both regimes to determine which saves you more.
Conclusion
Your choice between the Old and New Tax Regimes should reflect your financial strategy and investment goals. The new regime's simplicity may appeal to many but if deductions play a significant role in your tax savings, the old regime remains a strong contender.
For those navigating capital gains, the new rates emphasise holding periods and asset categories, so plan accordingly.
- You can ask rediffGURU Ramalingam Kalirajan your questions HERE.
Ramalingam K, an MBA in Finance, is a Certified Financial Planner. He is the Director and Chief Financial Planner at holisticinvestment, a leading financial planning and wealth management company
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