The new tax regime (NTR) is reshaping how Indians approach income tax. Launched as the default regime in FY 2023-24, it offers lower tax slabs but restricts exemptions. Let’s dive into its implications and how you can optimize your tax strategy.
Understanding the New Tax Regime
The NTR simplifies tax filing by offering lower tax rates across income brackets. However, it comes with a trade-off: most exemptions and deductions are unavailable. Popular options like Section 80C, 80D, and HRA are no longer applicable.
Did You Know India’s new tax regime offers a rebate under Section 87A, ensuring individuals with income up to ₹7 lakh pay zero tax!
Here’s a comparison to understand the changes:
| Aspect | Old Tax Regime | New Tax Regime |
|---|---|---|
| Tax Exemptions | Extensive (e.g., 80C, HRA) | Limited to standard deduction |
| Slab Rate for 30% Tax | Above ₹10 lakh | Above ₹15 lakh |
| Flexibility | Exemptions based on investments | Simpler, no exemptions needed |
Who Benefits the Most from NTR?
The suitability of NTR depends on your financial profile.
- High-Income Earners Without Investments: For individuals earning above ₹15 lakh with no substantial deductions, the new regime offers a straightforward, lower-tax solution.
- Young Professionals: Those in their early careers who haven’t invested heavily in tax-saving instruments benefit from simpler compliance.
However, families with multiple deductions under Sections 80C, 80D, and housing loans may save more under the old regime.
Example:
A salaried person earning ₹12 lakh annually with ₹2 lakh in deductions will likely save more under the old regime.
Switching Rules and Considerations
Flexibility exists, but the rules differ for salaried and business taxpayers:
- Salaried Individuals: Free to choose between regimes annually by notifying employers at the financial year’s start.
- Business Taxpayers: Can switch to the old regime only once. Reverting to NTR is prohibited afterward.
Steps to Opt Out of NTR
- Tick “Opting out of the new regime” in the ITR form for salaried individuals.
- File Form 10-IEA if you’re a business taxpayer.
Final Advice
Evaluate your income, deductions, and lifestyle before deciding. Use an online tax calculator to compare both regimes. While NTR suits many, the old regime remains a better choice for those with significant exemptions.
Planning early can save you time, effort, and money.