New Tax Regime or Old Tax Regime: Which One Should You Pick to Save More?

Since the New Tax Regime was introduced under the Finance Act 2020, taxpayers in India enjoy a choice between two tax structures: One is the Traditional Old Tax Regime that provides a multitude of reliefs and deductions, while the New Tax Regime offers considerably lower tax rates with very few deductions. 

So, which one saves you more? Let's break it down.

Old Tax Regime -

Under the Old Regime, taxpayers can avail of a host of deductions and exemptions to diminish the amount of taxable income, such as:

• Under Section 80C (up to ?1.5 lakh): Investment in PPF, ELSS, LIC, and so forth.
• Under Section 80D: Payment of health insurance premiums
• HRA: House Rent Allowance
• LTA: Leave Travel Allowance
• Standard Deduction: ?50,000
• Interest on education loans, charitable donations, etc.

This is good for the salaried class and professionals who make full use of exemptions and deductions.

Understanding New Taxation

The New Tax Regime has lower tax rates but in most cases disallows the claims of deductions and exemptions. Such is the rate slab:

| Income Slab (?.)      | Tax Rate |

| --------------------- | -------- |

| 0 - 3,00,000          | 0%       |

| 3,00,001 - 6,00,000   | 5%       |

| 6,00,001 - 9,00,000   | 10%      |

| 9,00,001 - 12,00,000  | 15%      |

| 12,00,001 - 15,00,000 | 20%      |

| Above 15,00,000       | 30%      |

Main Highlights:

• Simplified tax filing procedures
• Lower rates
• No requirement for proofs of investment
• There is no claim of deductions such as 80C, 80D, HRA, etc., here either. 

Which Regime Saves You More?

Depends on income and investments, 

The Old Tax Regime must be chosen if:

• You claim deductions worth more than ?2.5–?3 lakhs (80C, HRA, 80D).
• You invest in tax-saving schemes
• You pay home loan interest or tuition fees.

The New Tax Regime must be chosen if:

• You have comparatively fewer investments or deductions to claim.
• You want simpler tax procedures.
• Your income is moderate (say ?7–9 lakhs) and you are not utilising most exemptions.

Example Comparison:

Say your annual income is ?10,00,000.

Old Regime:

• Deductions: ?1.5L (80C)+?50,000 (Standard)+?25,000 (80D) = ?2.25L
• Taxable income = ?7.75L
• Approx Tax = ?65,000 (post-rebate)

New Regime:

• No deductions
• Taxable income = ?10L
• Tax = ?60,000 (Rebate for income below ?7L only)

So the old scheme avails more savings since the deductions reduce taxable income.

Final Thoughts

It depends on your individual case. If you have investments in tax-saving instruments and claim deductions, the Old Tax Regime would probably be more beneficial. But if you'd rather keep things simple and have no major deductions, the New Tax Regime could save you some money.

Review your income, expenses, and other tax-saving plans before you choose. Remember you can switch the regime every year (at least for salaried people). So keep this choice open every year.