Old vs. New Tax Regime: Which One Is Right for You?

Deciding between the New and Old Tax Regimes might be tricky for salaried employees. Don’t worry, this video could help you simplify that decision by comparing their benefits and differences.

First, we’ll discuss the Old Tax Regime. Here, you can claim deductions like HRA, LTA, etc., under Section 80C of the Income Tax Act, 1961. The tax exemption limit here varies by age. It is ₹2.5 Lakhs for those aged under 60, ₹3 Lakhs for senior citizens (60-80 years), and ₹5 Lakhs for super senior citizens (above 80). You’ll also learn that if you choose the New Tax Regime, you will benefit from a tax exemption limit. This is applicable for all age groups, on income up to ₹3 Lakhs.

Next, we’ll discuss the tax rebate applicable in each regime. There’s a tax rebate of up to ₹5 Lakhs in the old regime, while this limit is ₹7 Lakhs in the new regime. But remember, you cannot opt for tax deductions under Section 80 in the new regime.

Finally, we try to answer the question – how to choose? Though the New Regime is now the default, the Old Regime is still an option. You can choose between them based on your taxable income and investments.

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Key Takeaways

The old tax regime allows deductions like HRA, LTA, and Section 80, while the New Regime doesn't offer these deductions

Exemption limits vary in the old regime based on age, while the New Regime has a uniform limit of ₹3 Lakhs

Tax rebate limit is ₹5 Lakhs in the old regime and ₹7 Lakhs in the new regime, providing relief to taxpayers

New regime introduces favourable provisions like higher leave encashment limit and family pension deductions

The new tax regime is now the default option, but the old regime still exists, giving taxpayers the flexibility to choose

Understanding the differences helps make an informed decision based on taxable income and investments

Evaluate expenses, use online tax calculators, and choose the regime that best suits your financial situation

Frequently Asked Questions
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The new exemption limit of ₹3 Lakhs means that if your earnings are below this threshold, you won’t have to pay any income tax. This could be good news for you as a young salaried employee, as it allows you to keep more of your hard-earned money without the burden of tax.
With the leave encashment limit now set at ₹25 Lakhs, you could have a significant advantage compared to the previous limit of ₹3 Lakhs. This increase could help reduce your taxable income considerably. It could allow you to benefit more from your unused leave when you decide to cash it in.
In the old tax regime, deductions like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and Section 80C deductions (up to ₹1.5 Lakhs) are available. These deductions can lower your taxable income if you are eligible for them. Consider these carefully if you are actively using these deductions to reduce your tax burden.
Since the new regime is now the default option, it’s essential for you to evaluate your income, investments, and possible deductions. This assessment could help you decide whether to accept this default or opt for the old regime. Consider your salary structure, investments, and available deductions carefully to ensure that you choose the option that benefits you most, financially.
Look at your complete financial picture when choosing between the old and new tax regimes. Think about your deductions, investment portfolio, and long-term financial goals. Additionally, consider how changes in your taxable income might affect your overall tax liability. This holistic view will help you make an informed decision that aligns with your financial situation.
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