How is the New Income Tax Slab Different from the Old One?

Every individual residing in any country must pay taxes. These taxes collected from individuals are necessary for the country’s economy and developmental activities. And therefore, it is the responsibility of every individual to pay their due.

In India, as per the Income Tax Act, tax is levied on all individuals, corporations, and other entities. If the taxpayer’s income exceeds the minimum threshold limit, they are subject to a slab system of taxation as per the old or new income tax slab, depending on whatever they chose for the given financial year. The two-tax regime in India was adopted in the year 2020 under the Finance Act of 2020, giving taxpayers the option of choosing between the old and new tax regimes.

Difference Between Old and New Income Tax Slabs

The concept of two-tax regime is fairly new in India, and since your income tax returns are based on your choice of tax regimes, it is best that you gain an in-depth understanding of the differences between the two. Let’s start with the old taxation system. 

Old Tax Regime in India

Under the old tax slabs, taxpayers can claim deductions, exemptions and allowances that would allow them to properly plan and save their taxes. 

The old tax structure is a little more complicated than the new income tax slab (we will get to that in a minute!). Although the tax rates are higher under the old tax slabs, individuals can opt for different ways to reduce tax liabilities. The old regime offers over 70 exemptions and deduction options that allow taxpayers to bring down their taxable income in order to decrease their income tax. While some exemptions like house rent allowance (HRA) and leave travel allowance (LTA) are made part of the salary structure, you can also avail additional deductions by investing, saving, or spending on specific items. 

An advantage of opting for the old tax regime is that it instils a culture of saving over time by requiring investments in tax-saving instruments. It also allows taxpayers to save for their future for emergencies and important milestones like home purchase, marriage, etc. 

New Income Tax Slab

Now that we have discussed the old tax regime, let’s get on with the new income tax slab. The new system has six tax slabs, each with a lower rate on income up to 15 lakhs. Several of the exemptions and deductions that are available in the old tax regime do not apply to the people who opt for the new income tax slabs. The two main differences between both the taxation systems are:

  • The total number of tax slabs have expanded under the new regime with reduced rates in the range of 15 lakhs brackets
  • The exemptions and deductions of the old regime are not available

An added benefit of the new tax regime is that taxpayers have the freedom to invest their money without any preconceived limitations. There are also no mandatory rules and regulations governing your investments under the new taxation system. 

Income Tax Slab Rates Under Both Regimes

Income Tax Slabs Old Income Tax Slab New Income Tax Slab
Up to 2,50,000 0% 0%
2,50,000 – 5,00,000 5% 5%
5,00,000 – 7,50,000 20% 10%
7,50,000 – 10,00,000 20% 15%
10,00,000 – 12,50,000 30% 20%
12,50,000 – 15,00,000 30% 25%
15,00,000 & over 30% 30%

Besides individuals, corporate entities are also required to pay corporate taxes under either of the two income tax regimes. Now, if you are wondering ‘what is corporate tax’, the simple answer to that would be – corporate taxes are the taxes levied on the profits of any domestic or foreign corporation operating in India. 

Old vs New Income Tax Slab – Which is Better?

Both the tax regimes have their pros and cons. Which one suits you best depends on whether you wish to claim exemptions and deductions in your income tax returns or go for a lower tax rate. If you prefer to do the former, the old tax regime will prove to be a better option for you, even though the lower tax rates in the new regime may seem tempting. 

It is advisable to do a comparative evaluation and assessment under both the tax systems before you submit your taxes. You can also use income tax calculators available online to check the net payable tax under both regimes and plan your taxes accordingly. 

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