Do you know you have the choice to choose your tax rates – Know about new tax regime and old tax regime

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Do you know you have the choice to choose your tax rates – Know about new tax regime and old tax regime

This is the first time when a new tax regime has been initiated. The introduction of a new tax regime leads to confusion in the mind of taxpayers, that which one is suitable for them. When it comes to choosing a thing, in available options, choosing wisely for your benefits is very important. How better it sounds, that you can choose your own tax rates. Tax rates are the ratio  which an individual or a company use to be taxed.

“The choice to make good choices is the best choice you can choose.” a quote by Ryan Lilly is well fitted for taxpayers. Many individuals may find it challenging to identify which one of the two regimes is better as per their income. Choosing between the old tax regime with deductions and exemption and the new tax regime without deductions and exemption but with lower slab rates, while filing the ITR is a quite tedious task.

The New Tax Regime

Under section 115BAC, the Budget 2020 introduces a new regime giving an option to taxpayers to pay income tax at lower rates. The new tax regime comprises six tax slabs with prevailing rates reduced on income up to Rs. 15 lakh.

The New Tax Regime; know the slab rates

Income slabNew slab rates
Income from Rs 2.5 lakh to Rs 5 lakh5%
Income from Rs 5 lakh to Rs 7.5 lakh10%
Income from Rs 7.5 lakh to Rs 10 lakh15%
Income from Rs 10 lakh to Rs 12.5 lakh20%
Income from Rs 12.5 lakh to Rs 15 lakh25%
Income above Rs 15 lakh30%

Various tax rates, multiple exemptions, and deductions are not applicable under New Tax Regime. Taxpayers can analyze the new tax regime’s pros and cons.

The Pros:

  • Taxpayers have the option to choose their best suitable tax rates for themselves, that is either the old tax regime or the new tax regime. As of now, the Government has not made it compulsory to switch to the new tax regime.
  • Flexibility has been offered to the taxpayer to invest their money as they prefer under the new tax regime.
  • Individuals can easily invest in tax-saving schemes and insurance plans which are aligned with their financial goals.
  • With multiple tax slabs, a taxpayer can pay at tax rates that easily meet their yearly income.

The Cons:

  • It is expected that in the coming days there are chances that, the present exemptions will be reviewed and slowly erased from the new tax regime.
  • With no exemptions, the total taxable amount will be higher as compared to the old tax regime.
  • The saving rates are destined to fall.

The Old Tax Regime

The old tax regime is the existing tax regime according to which all taxpayers earlier use to pay the taxes. The old regimes include 3 tax slabs, for which the pros and cons can be checked below. 

The Old Tax Regime; know the slab rates

Income slabExisting slab rates
Income from Rs 2.5 lakh to Rs 5 lakh5%
Income from Rs 5 lakh to Rs 10 lakh20%
Income above Rs 10 lakh30%

The Pros:

  • The individual’s savings are encouraged in the old tax regime for future events such as marriages, education, purchase of property, and many more.
  • The habit of savings in people is inculcated by the old tax regime which is very beneficial at times of emergencies.

The Cons:

  • In the old tax regime, tax benefits to individual taxpayers were available on the basis of investments  for a fixed period, which generally last for three to five years.
  • For senior citizens who prefer to have liquidity in their hands , opting for old tax regime is not  possible easily.
  • In the old tax, regime investors could not make investments in other instruments which had chances of performing better.
  • Documentation and additional proof of investments are required in case of proceedings of assessments before tax authorities which are not mandatory for the new tax regime.