Many people who have already submitted their income tax return for the financial year 2024-25 may now be awaiting their refund. On the other hand, those who have not yet filed could face a range of difficulties.
A major challenge for these individuals is often deciding between the old and new income tax regimes.
Most people either stick with the regime they selected in the previous year or make their choice based simply on which deductions they’re eligible to claim. For instance, if someone has invested in tax-saving options that qualify under Section 80C, they often opt for the old tax regime, which allows such deductions.
On the other hand, those without significant deductions typically prefer the new tax regime, which leaves out most exemptions but compensates with lower tax rates.
However, this method isn’t always the most prudent. The most suitable tax regime depends on a combination of your annual income, how many deductions you can rightfully claim and your willingness to manage the additional paperwork required under the old system.
Experts recommend doing a detailed calculation each year: compute your taxable income under both regimes, factoring all eligible deductions in the old regime, and compare the actual tax liability.
If your total tax-saving deductions under Sections like 80C and 80D are less than Rs 4 lakh, the new tax regime usually means you’ll pay less tax.
But if your deductions, such as those for home loan interest, investments or HRA, add up to more than Rs 4 lakh, the old regime is often better because it lets you subtract all those amounts before calculating tax.
Most people find their deductions don’t usually cross the Rs 4 lakh mark. So for many, the new regime works out to be cheaper.
If you’re unsure which tax regime will save you more money, just try out an online tax calculator. It lets you enter your details and instantly see how much tax you’d pay under both the old and new systems.
The new tax regime permits taxpayers to file their returns at reduced tax rates but does not allow them to claim most tax deductions. In contrast, the old tax regime features higher tax rates but enables taxpayers to benefit from a variety of deductions, such as those under Section 80C, HRA and others commonly used in India.
