Since the new fiscal year has started, many wise investors are attempting to plan their taxes from the outset. The first question that comes to mind when submitting an income tax return is whether to choose the old income tax system or the new one, especially now that the government has made it more enticing in Budget 2023 by offering a few advantages. Whether a trader or investor, the choice of regime will depend on the income bracket one falls into and the best way to take advantage of the exempt status.
Age vs. Youth Debate
Although the old income tax system is still an option for taxpayers, the new system is now the default. Anyone earning up to Rs 7.5 lakh (With the standard deduction of Rs 50,000) will not be required to pay income tax starting on April 1, 2023, according to Adhil Shetty, CEO of Bankbazaar.com.
“If your income is Rs 5 lakh or less after deductions, it is a good idea to choose the old regime,” said Shetty, adding that switching to the previous system would be wise.
“Those with income up to Rs 7.5 lakh will benefit from being in the new regime as they will not have to pay any tax,” stated Archit Gupta, founder and CEO of Clear (formerly cleartax).
Santosh Navlani, COO of ET Money, echoed similar comments and stated that it is possible that many people will find the new tax regime to be more advantageous because the government has made adjustments to improve its appeal.
“Those in the medium income group will gain by remaining in the existing regime if they can use their CTC in a way that exhausts all exemptions and benefits available, whether in the form of allowances they claim or reimbursements they are qualified for. They must be careful while claiming these advantages and using up any chapter VIA deductions, or section 80 deductions, according to Gupta of Clear.
Gupta, in the meantime, supported the new tax structure for the very wealthy. “The new regime will favour the ultra wealthy due to the cess reduction, with income exceeding Rs 5 crore. In the new tax system, the highest surcharge rate on income exceeding Rs 5 crore has been lowered from 37% to 25%. Because of the lower tax rates under the new regime, high income earners will also gain from it, the CEO said. “The advantage from claiming deductions will be less than the lower tax outgo under the new regime.
However, it’s crucial to understand that once you select the new tax system, you cannot change to the previous system for that fiscal year, according to Shetty of Bankbazaar.com.
“I’d also like to stress that, if you choose the new system, you’ll need to be extra careful with your insurance and investment decisions because there won’t be any tax-saving incentives. If you choose the new regime but don’t make enough investments, it could potentially jeopardize your financial objectives, according to Navlani.
Knowing the total amount of your deductions and exemptions makes choosing a tax system simpler. The ET Money COO continued, “You can add all deductions and exemptions you used last year as a reference.” He compares the taxes that can be saved based on the regime that is chosen.