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Home All News Old and New Tax Regimes: Differences

Old and New Tax Regimes: Differences

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Old and New Tax Regimes: Differences

In Budget 2020, the new tax system was initially introduced. This year, in Budget 2023, a number of adjustments were made. Here is a full comparison of the new and old tax systems, together with its advantages and disadvantages, so that taxpayers may decide which one best suits their needs.

What Is the New Tax System? The six tax slabs in the new tax system have tax rates of 0%, 5%, 10%, 15%, 20%, and 30%. Each of them equates to a reduced income rate of up to 15 lakhs per year. Income up to 7 lakhs per year is exempt from the increased tax rate. The advantages and exemptions provided by the previous tax system, which benefited taxpayers, are not valid under the current system.

In certain circumstances, the new tax system is preferable to the previous one since it permits unrestricted investments from income that are tax-free. Additionally, income under Rs. 7 lakhs is not subject to tax.

Limitations to Choosing the New Tax System Since there are no exemptions under the new tax system, its major drawback is the potential rise in taxable income. The basic deduction of Rs. 50,000, which was previously available under the old tax system, is the only benefit permitted under the new tax system.

What Is the Old Tax System?The previous tax system featured four tax brackets that ranged from 0% to 30%. The annual threshold for no deductions was set at 5 lakhs. The primary way that this differs from the comparing the old and new taxation systems Due to the extra parts of the Income Tax Act, the previous tax system offered a number of deductions that gave taxpayers many advantages to assure reduced taxes.

The advantage of choosing the old tax system The previous tax system allowed you to plan your taxes based on your savings, giving you a strategy that is future-proof. Investments made under Section 80C qualified for up to 1.5 lakhs in tax deductions. Through this approach, consumers were urged to save money for their tax preparation.

Limitations of Choosing the Previous Tax System Both the previous and the new tax regimes have their drawbacks. For the previous system, the investments necessary to lower taxes diminish available cash. In addition to investments made for tax purposes, many families also have committed investments like mortgages, wedding or student loans. Furthermore, even after making investments that are tax deductible, getting the deduction might be difficult.

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