At the time of filing of income tax return (ITR), it is important to choose the right tax regime. And the ‘right’ is the one which leads to lower tax liability. Meanwhile, the I-T portal data as of 9 September shows that 5.13 crore taxpayers have already filed their income tax return, out of which 3.48 crore have already been processed.
Although it could be argued that it is better to continue with the same tax regime that you followed last year, one could change it as well if it leads to some tax savings.
Let us understand more about this here.
Income Tax: Which regime to choose?
I. Old Vs New: The old tax regime leads to greater tax savings on account of deductions for investments, but levies higher tax rates. On the other hand, the new tax regime does not allow any deduction but levies lower tax rates.
“In most cases, tax liability for the current year is a sufficient parameter to determine the choice of switching regime. For example, if your income is ₹10 lakh and deductions are up to ₹3 lakh, then the new regime is beneficial for FY 2024-25. However, if deductions are greater than ₹3lakh, then the old regime is beneficial and you can consider switching to the old regime. Evaluate your overall financial situation, potential deductions, and future income before deciding. Consulting a tax professional can help you make an informed choice,” says CA Shefali Mundra, Tax Expert at ClearTax.
II. Deductions under new tax regime: Although all major deductions under 80C, 80D, and 80G are not permitted in the new tax regime, it still allows a few deductions. These include the following:
a) 80CCD (2) This is given for the contributions made by the employer towards the National Pension System (NPS).
b) 80CCH: Given for the income earned via the Agnipath scheme.
c) 80JJAA: Enables eligible businesses to claim a 30 per cent deduction on additional employee recruitment costs for three consecutive assessment years.
III) Using calculator to compare the two regimes: One of the most effective ways to evaluate which regime is better, you can use a tax calculator that gives you a comparative analysis. In this calculator, you enter the figures, and it tells you which regime leads to how much tax liability. You can access the tax calculator here.
IV. Seeking expert advice: It is recommended to seek a tax expert’s advice. Mumbai-based CA Chirag Chauhan recently shared on X that he helped one client save tax amounting to lakhs of rupees by migrating to the new tax regime. “A salaried Taxpayer filed online ITR under the Old Regime with just 80C claim of ₹1.5 lakhs. We advised him to switch to the New Regime, saving him lakhs in taxes,” he wrote.
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