TAX REGIME YOU CAN CHOOSE OLD OR NEW

TAX REGIME YOU CAN CHOOSE OLD OR NEW

02.02.2021

With Budget 2021 leaving tax slabs unchanged and restricting incentives to ease of filing returns, it has become all the more important for taxpayers to re-examine the pros and cons of the new taxation system and the old one to make the most of their income.

Last year’s budget introduced the new concessional tax regime that offers an individual the option to choose lower tax rates in lieu of forgoing certain tax exemptions and deductions. These include standard deduction, exemption towards house rent allowance, LTA, house property loss and deduction towards provident fund contribution and life insurance premium.

The new regime prescribes tax rates ranging from 5% to 30% with the highest rate applicable for income of above 15 lakh. This option is beneficial in those cases where an individual has fewer exemptions and deductions to claim. As the accompanying graphic shows, the old regime is more beneficial for individuals with higher income levels and tax-saving investments qualifying for deductions or exemptions.

Each taxpayer would have to undertake fact-specific evaluation keeping in mind his/her income, various exemptions and investments to decide the right regime to opt for.

Given that the new tax regime was introduced last year, many taxpayers still have questions around the applicability/ benefits of the scheme. For starters, taxpayers can choose afresh from the options every year, provided there is no income from business or profession. You can intimate your employer if you want to opt for the new regime and the employer will deduct tax accordingly. The only bar is that once intimated to the employer, the option cannot be modified during the year. However you can change the option at the time of filing of tax returns.

Design: Sajeev Kumarapuram