All Individual taxpayers invariably know the terms Old Tax Regime (OTR) and New Tax Regime (NTR). A lot of discussions have been done on this topic. If you ask me, the matter is not worth the hype.
“Which Regime is more beneficial to me?” is a natural question that comes to every taxpayer’s mind due to the anxiety of missing benefits if the option is wrongly chosen!
Let me answer this to erase your anxiety once and for all. Keep in mind to follow these two steps:
- File the Tax return on or before the original due date (For example, for the Financial year ending March 2023, 31st July 2023 is the due date) and
- While filing the return, compute the taxes under both OTR and NTR. See which is less taxing. Choose that option. That’s it. It is not rocket science. There is no need to discuss this throughout the year!
Some of you may say that you have to give the declaration to the company about the option under which TDS is to be done. Don’t worry; you go with the default model. NTR is the default tax regime for the financial year starting 1st April 2023. In case excess TDS is done while compared to OTR, you can claim the refund.
Those who are proactive and want to choose the beneficial option during the financial year, then they have to check these two factors –
- If you have more deductions, then OTR may be beneficial. The deductions such as House Rent Allowance (HRA), Leave Travel Concession (LTC) Investment (up to Rs.150000) or Mediclaim Insurance (Rs.50000) etc., are available only under OTR.
- The NTR may be beneficial if you have lesser deductions and/or a salary up to Rs.10,00,000.
In NTR, there are lower income tax rates (compared to OTR), but there is no option of availing deductions and exemptions like HRA, 80C, and 80D as available under OTR.
Tax Slabs – Under OTR, income up to Rs.2,50,000 is exempt from tax. There is no change in this slab in the current year’s Budget. Whereas the NTR tax slab is modified wherein up to Rs.3,00,000 income is exempt from tax and considering tax relief u/s 87A, those with up to Rs.7,00,000 taxable income needn’t pay any taxes under NTR. There are many calculators in the public domain, and you can use one to determine an approximate tax under both regimes.
Higher Income earners: People with income exceeding Rs.15,00,000 will pay 30% under both schemes. So, the benefit of OTR vs NTR is only for income up to Rs.15 Lakhs.
Suggestions – Irrespective of your chosen tax regime, please invest in ELSS mutual funds, EPF or PPF, which will help you cultivate the habit of savings.