Understanding the new tax regime for Indian taxpayers
Launched in the 2020 budget, the new tax regime presents a choice for Indian taxpayers alongside the conventional system. Featuring multiple tax slabs with lower rates, it is designed to streamline the income tax process. Deciding between the new and old regimes can be challenging. This article demystifies the new regime, helping you make the right choice.
Know your slabs and rates
Under the new regime, there are seven tax slabs, starting at ₹2.5 lakh and going up to over ₹15 lakh. For those earning between ₹2.5 lakh and ₹5 lakh, the rate stands at 5%. It increases to 10% for the ₹5 lakh to ₹7.5 lakh bracket, and so on, until it reaches 30% for those earning more than ₹15 lakh.
Deductions and exemptions
One of the biggest differences in the new regime is that most of the deductions and exemptions you enjoyed under the old regime are gone. This means no more relying on deductions like the popular ones under Section 80C or housing loan interest under Section 24. In essence, the trade-off is lower tax rates in exchange for losing these benefits.
Choosing between regimes
Choosing the right regime depends on your personal financial situation. If you claim large deductions and exemptions under the old regime that significantly reduce your taxable income, you may benefit more from staying with it. Conversely, if you have minimal deductions or find the process of claiming them tedious, switching to the new regime can reduce your overall tax liability.
Planning your investments wisely
In the new regime, with fewer exemptions at play, investment strategies can be focused on better things. Rather than chasing tax savings, taxpayers can now emphasize returns when choosing investment options. This shift requires a careful assessment of one's finances to select the most beneficial tax regime, keeping in mind that every taxpayer's situation is unique.
