Filing your income tax return requires careful consideration of both the old and new tax regimes. A comparison of tax computations under both regimes will help determine which one results in lower tax liability.
Understanding the new tax regime
Introduced in 2020, the new tax regime was made the default option for taxpayers under the Finance Act, 2023. This regime expanded its scope to include Association of Persons (AOP), Body of Individuals (BOI), and Artificial Juridical Persons (AJP). Opting for the new tax regime under Section 115BAC means you must forgo exemptions and deductions while computing your total income.
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If you are availing exemptions or deductions under the old tax regime, the new tax regime may lead to a higher tax outgo. Key deductions under Section 80C (investments), Section 80D (medical insurance), and Section 24 (housing loan interest) can significantly reduce taxable income. Taxpayers with substantial deductions should consider sticking to the old regime for better tax benefits.
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A step-by-step calculation will help determine which tax regime is more beneficial:
- Access the Tax Calculator: Visit the income tax department’s website and find the tax calculator tool.
- Select Taxpayer Details: Choose your taxpayer category (individual), age bracket, and residential status (resident or non-resident).
- Enter Income Details: Provide information on salary income, income from other sources, and house property income.
- Input Deductions and Exemptions: Specify deductions available under the old or new tax regime.
- Compute the Tax: The calculator will automatically compute tax liability under both regimes, allowing you to compare and choose the one with lower tax liability.
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