The choice between the old and new tax regimes has been a matter of debate since the introduction of the latter in Budget 2020. With the government’s continued push towards the new regime, taxpayers, especially salaried individuals, find themselves at a crossroads when it comes to optimizing their tax liabilities
Let’s delve deeper into the nuances of each regime to understand which one might be more beneficial for salaried employees in 2024
New Tax Regime:
The new tax regime offers revised tax slabs with lower rates, aiming to simplify the tax structure and reduce the burden on taxpayers. However, the trade-off comes in the form of limited exemptions and deductions. While the higher tax rebate limit and streamlined tax slabs provide some relief, the absence of popular deductions like HRA, LTA, and Section 80C can impact overall tax savings.
Key Changes in the New Regime:
Higher Tax Rebate Limit: Taxpayers with an income of up to ₹7 lakhs can avail full tax rebate, making it a lucrative option for individuals falling within this bracket.
Streamlined Tax Slabs: The increased tax exemption limit up to ₹3 lakhs aims to provide more breathing room for taxpayers.
Standard Deduction: The standard deduction of ₹50,000, previously available only in the old regime, has been extended to the new regime, further enhancing tax benefits.
Old Tax Regime:
The old tax regime, while complex, offers a plethora of exemptions and deductions, including popular options like HRA, LTA, and Section 80C. For salaried employees, these deductions can significantly reduce taxable income and lower overall tax liability. However, navigating through the numerous provisions requires careful planning and documentation.
Choosing the Right Regime:
The decision to opt for the old or new tax regime ultimately boils down to individual financial circumstances and tax-saving goals. While the new regime offers simplicity and lower tax rates, it may not be suitable for those who heavily rely on deductions like HRA and Section 80C to minimize taxes. On the other hand, the old regime provides flexibility and a wide array of tax-saving options but requires meticulous tax planning and compliance.
Calculating the Breakeven Point:
To determine which regime is more beneficial, taxpayers can calculate the breakeven point based on their income levels and eligible deductions. By comparing the tax liabilities under both regimes, individuals can make an informed decision that aligns with their financial objectives.
Conclusion:
The choice between the old and new tax regimes for salaried employees hinges on a thorough analysis of tax-saving options and individual tax profiles. While the new regime offers simplicity and revised tax slabs, the old regime provides a multitude of deductions for those willing to navigate its complexities. Taxpayers are advised to assess their specific requirements and consult with financial experts to make an optimal choice that maximizes tax savings while ensuring compliance with regulatory norms.