How to choose between old and new tax regime?

“How to choose between old and new tax regime” is a common query among taxpayers since the government introduced a new tax regime last year. While filing ITR, the government offers us two options to pick from:

The old tax regime with exemption and deductions

The new tax regime without exemption and deductions but with lower slab rates

There isn’t a single answer to this question. The complexity of the Indian tax rules is the culprit.

You would think that the new system is better after looking at the reduction in the tax rates. But, with these cuts, a person with Rs. 7,50,000 income will be required to pay Rs. 25000 while the person earning Rs. 10,00,000 income will be required to pay Rs. 37,500. However, for these savings, you’ll have to let go of all the deductions and exemptions that might nullify these gains.

This is what you can do to figure which regime works best for you:

If you’re staying in a rental flat, you’d be claiming HRA which is the biggest salary exemption one can get. Besides this, other tax-free components include Phone Bills, Food Bill, LTA, etc. You will have to pay taxes for all these if you choose the new tax regime.

As a salaried individual, two deductions that you automatically get are a standard deduction of Rs 50000 and your contribution towards your EPF (Employee Provident Fund). If you choose the new regime, you would not be able to claim these deductions even though you’ll be contributing to EPF. Over and above, you won’t be able to claim deductions against your housing loan or insurance policies, which helps reduce your taxable income.

Now, combine these deductions and exemptions and subtract them from your salary to check what your taxable income is and what it’d be if you let go of these deductions. This will help you decide which regime you should go for.

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I hope I cleared all your doubts regarding how to choose between old and new tax regime.