Tax season is back for salaried Indians. Most companies have already handed out Form-16 to their employees, and the window to file income tax returns (ITR) has opened. With that comes the familiar annual headache, should you opt for the new income tax regime or stick with the old one. Ever since the government allowed taxpayers to file their ITR by picking one of the two regimes, a large number of them have been caught in this very dilemma over which route works in their favour.
Suppose your annual income is Rs 20 lakh. The real question then becomes which regime makes filing tax lighter on your pocket.
It All Comes Down to Your Investments
Tax and investment expert Balwant Jain advises that it is wiser to decide which regime benefits you more before you actually file the return. According to him, on an income of Rs 20 lakh, your investments play the biggest role. If you have made investments, the old regime lets you claim tax relief under several heads, and only then does the scale tip towards it.
The Math Under the Old Regime
If you file your return on Rs 20 lakh under the old regime, you get a standard deduction of only Rs 50 thousand. The remaining Rs 19.50 lakh is then treated as your taxable income. Adding cess, this works out to an income tax of roughly Rs 3.35 lakh.
The Math Under the New Regime
Under the new regime, on the same Rs 20 lakh income, the standard deduction rises to Rs 75 thousand. Here, income up to Rs 4 lakh attracts zero tax. After working through the rest, the total tax including cess comes to Rs 2.03 lakh. That is a full Rs 1.35 lakh lower than under the old regime.
When the Old Regime Pays Off for Investors
If you have taken a home loan or put money into options such as LIC, PPF, HRA, medical insurance and NPS, choosing the old regime can make sense. But it only helps if your total investment crosses Rs 4 lakh. The old regime offers relief of up to Rs 2 lakh a year on home loan interest, another Rs 1.5 lakh on investments under 80C, and a separate Rs 75 thousand on medical insurance. Putting all these options together, you can claim at least an extra Rs 7 lakh. Only when your deductions add up this much does opting for the old regime work in your favour.
The New Regime Has Its Own Reliefs Too
It would be wrong to assume the new regime offers no relief. Under it, the government has kept income up to Rs 12 lakh outside the income tax net and also provided a standard deduction of Rs 75 thousand. On top of that, you can claim a tax break by making a special investment of Rs 50 thousand in the NPS Tier 2 account. Several other concessions, including fuel and driver allowance, are also part of it. The takeaway is clear: if you do not make any investments, filing your return under the new regime is the better choice for you.
