Today, February 11th, the Internal Revenue Service will have a budget discussion for taxpayers.

According to an email from the IRS, the impact of Budget 2022 on taxpayers will be discussed. Here’s a breakdown of what the old and new tax regimes entail for you to better understand your tax options.

Many taxpayers should have gotten an email from the IRS regarding a series of discussions about how the provisions in Budget 2022 may effect them.
Pragya Sahay Saksena, member-legislation and systems, Central Bureau Of Direct Taxes, will lead the online sessions today, February 11. The seminars will be broadcast live on the tax department’s official social media accounts.

It’s crucial to start at the beginning to understand your tax options in FY2022-23, which includes deciding between the old and new tax regimes.

Read Outlook Money’s Income Tax Guide For FY23 to learn more about how your income and investments will be taxed in FY2022-23.

Read More…

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We’ll take a deep look at the following topics in this article:

1. What are the differences between the old and new tax regimes?

2. What are the benefits and drawbacks of each?

3. What is the most effective regimen for you?

What Are The Differences Between The Old And New Tax Regimes?

Budget 2022 did not change the income tax labs or the two tax regimes for individual taxpayers, despite strong anticipation. As a result, you must still decide which tax regime is appropriate for you when planning your investments for FY23.

This option is especially important for taxpayers who don’t have significant investments—for example, you may be a senior citizen who no longer needs to invest in tax-advantaged products like the Public Provident Fund (PPF) or Employees’ Provident Fund (EPF) for retirement planning; or you may have recently entered the workforce and don’t have significant expenses like a home loan or tuition fees, in which case a higher-in-hand income is preferable.

Taxpayers have had the option of paying income tax under the new tax regime or the previous tax regime since FY2020-21.

Tax slabs: If your annual income is less than Rs5 lakh, the tax rates under both regimes are the same (Nil till Rs2.5 lakh and 5 per cent from Rs2.5 lakh to Rs5 lakh). The discrepancy begins at Rs 5 lakh and continues until Rs 15 lakh. If your annual income is between Rs 5 lakh and Rs 7.5 lakh, the income tax rate in the new tax system is 10%, compared to 20% in the old tax regime. Similarly, people earning between Rs 7.5 lakh and Rs 10 lakh will pay a lower tax rate of 15% under the new tax regime, compared to 20% under the previous regime.

If you earn between Rs10 lakh and Rs12.50 lakh, the new tax regime is also beneficial because the tax rate is 20%, which is a full 10% lower than the previous regime’s 30%. The difference in tax rates between the two regimes is lesser in the Rs12.5 lakh to Rs 15 lakh yearly income band, at 5%—30% in the older regime vs 25% in the current regime. In both regimes, the tax rate on income beyond Rs15 lakh is the same.

What Are Their Benefits And Drawbacks?

While the new tax regime offers reduced tax rates, you will be unable to claim tax deductions on investments and expenses such as premiums paid for life and health insurance, investments in equity-linked investment schemes (ELSS), PPF, and other similar vehicles, home loan repayment, and so on. There are around 70 exemptions and deductions in all. So, if you have a home loan, a life insurance policy, a health insurance plan, or EPF and PPF investments, you might be better off sticking with the existing tax regime because you’ll save money on taxes.

Benefits of the New Tax System:

Lower taxes (for incomes of Rs5 lakh to Rs15 lakh; for those under 60 years), greater in-hand income, and fewer paperwork (since proof of investment is not required).

The New Tax Regime’s Drawbacks:

There is no tax benefit for expenses like life insurance, health insurance, home loans, or investments like EPF, PPF, ELSS, and so on.

The Benefits of the Old Tax System:

Tax benefits are available for expenses such as life insurance, health insurance, and home loans, as well as investments such as EPF, PPF, ELSS, and contributions.

The Old Tax System’s Drawbacks:

Higher taxes (for revenues of Rs5 lakh to Rs15 lakh), less in-hand income, and more paperwork as confirmation of investment may be required by the employer.

Which Regime Is The Most Effective For You?

This is largely determined by your tax bracket and the investments you’ve made. If the investments are substantial and provide tax benefits, the old tax system is preferable. If you are in a lower tax bracket or have less tax-advantaged investments, the new system may be better suited to your needs. Before making a decision, carefully consider all of the details.