What should you choose in 2022: the new income tax regime or the existing income tax regime?

The Union Budget 2022 included no significant modifications to the tax slabs, either under the old or new tax regimes, which were implemented in 2020. So, how can a taxpayer choose between the new and old tax structures? In order to determine which regime would be more beneficial to a taxpayer, one must conduct a thorough analysis and comparison of tax expenditures and other criteria. Before deciding between new and old tax regimes, a taxpayer should think about a few aspects.

What should you do if you can’t decide between the new and old tax regimes?

In two ways, the new tax system differs from the previous one. For starters, it offers more tax slabs with lower rates. Second, if the new tax regime is chosen, all key exemptions and deductions available to taxpayers under the present (old) tax regime are no longer available. “If the benefit of lower rates in the new tax regime outweighs the value of exemptions and deductions available under the previous tax system, the taxpayer can pick the new tax regime”.

Read More…

[pt_view id=”baa39696xe”]

The difference in slab rates is the most significant distinction between the old and new tax regimes. In India, taxpayers must pay income tax according to the slab system into which they fall. Individuals’ average income is taken into account while determining the tax slab. As a result, higher-income people will have to pay more in taxes.

The ability to cut taxes is another significant distinction between the old and current tax regimes. In the new tax regime, no deductions are allowed, while in the old tax regime, a taxpayer has a number of possibilities.

“While the new tax regime allows taxpayers to claim zero deductions or exemptions, the old tax system allowed taxpayers to claim roughly 70 deductions and exemptions in order to reduce their taxable income. Deductions help taxpayers to lower their tax bill by saving, investing, or spending on specific items”.

Which tax system is preferable?

Founder and CEO, Archit Gupta To determine whether tax system is preferable, the taxpayer should compute their income tax liability at the current normal tax rates, i.e. at old tax slab rates, after taking use of all available exemptions and deductions. Salaried individuals, for example, can claim the exemption for LTA, HRA, and the standard deduction of $50,000. Individuals can also deduct up to 1.5 lakh in interest on housing loans, NPS contributions, and other expenses under Section 80C.

Furthermore, the individual should compute his or her income tax liability using the new tax slab rates. They may now compare and choose the best tax system for them, he added.

Whether you choose the old or new tax regime is entirely up to you, and it will be determined by your income structure, available deductions, and circumstances.

Who should choose the new vs who should choose the old?

Choosing between tax regimes may be influenced by a number of factors, including current income level, income composition (i.e. sources of income), investment appetite, and saving habits, among others. Individuals must calculate their tax liability under both the old and new tax systems before deciding which is most advantageous.

To improve GST compliance, the CBIC will increase departmental audits.

“The Internal Revenue Service has also developed an easy-to-use calculator that determines which tax regime is most advantageous based on tax outflow.” When picking between the old and new tax regimes, one should weigh the benefits and drawbacks of each, according to Akash Kumar, Director and Co-Founder of Fincorpit Consulting Private Limited. The choice between a new tax regime and an old tax regime is made by the taxpayer.

“We’ve found that most taxpayers profit from being in the previous regime when they take advantage of section 80C and take advantage of tax deductions and advantages provided in their salary structure, such as claiming HRA, receiving a portion of CTC as reimbursements, and so on.” Only ten percent of Cleartax filers profited from the old system and chose to stay in it.

The younger demographic, which does not have many tax-saving investments, has also been shown to prefer the new tax structure.

“Many taxpayers are choosing the new regime because they don’t want to be locked into Section 80C investments, which have a lock-in term.” Instead of locking their assets in tax-saving options for 3-5 years, these taxpayers chose to invest in FDs.”

Is it legal to bounce back and forth between the old and new tax regimes?

If you are a salaried employee, you have the option to make this decision every year. “Individuals receiving income from ‘Salary,’ ‘House Property,’ ‘Capital Gains,’ and ‘Other Sources’ can select between the old and new tax regimes every year.” Individuals with income from a business or profession, on the other hand, only have one chance to revert to the previous tax regime after opting for the new one. They may only choose the new tax regime once in their lives.”