As the deadline to file your Income Tax Return (ITR) approaches, it's crucial to determine which tax regime—old or new—suits you best. The deadline for filing ITR is July 31, and failure to file by this date may result in penalties.

Understanding the Tax Regimes

New Tax Regime (Default)

Introduced in Budget 2020 and further enhanced in Budget 2023, the new tax regime is now the default option for taxpayers. It offers lower tax rates but eliminates many deductions and exemptions available in the old regime.

Tax Rates under the New Regime:

Income Slab (₹) Tax Rate (%)

Up to 3 lakh Nil

3-6 lakh 5% (with rebate u/s 87A)

6-9 lakh 10% (with rebate u/s 87A)

9-12 lakh 15%

12-15 lakh 20%

Above 15 lakh 30%

Note: A tax rebate of up to ₹25,000 under Section 87A applies for residents with a total income not exceeding ₹7 lakh.

Additionally, the surcharge on income above ₹5 crore has been reduced from 37% to 25%, lowering the highest effective tax rate from 42.74% to 39%.

Deductions Available:

Standard deduction from salary: ₹50,000

Employer’s contribution to employee’s NPS under Section 80CCD(2)

Deductions Not Available:

Leave travel allowance

House Rent Allowance (HRA)

Medical insurance premium

Interest on home loans for self-occupied houses

Old Tax Regime

The old tax regime allows for over 70 deductions and exemptions, which can significantly reduce your taxable income.

Tax Rates under the Old Regime:

Income Slab (₹) Tax Rate (%)

Up to 2.5 lakh Nil

2.5-3 lakh 5%

3-5 lakh 5%

5-10 lakh 20%

Above 10 lakh 30%

Key Deductions and Exemptions:

Section 80C (up to ₹1.5 lakh for investments like PPF, EPF, etc.)

Section 24 (interest on home loan up to ₹2 lakh)

Health insurance premiums under Section 80D

Choosing the Right Regime

Old Regime: Opt for this if you have significant deductions and exemptions, which can reduce your taxable income.

New Regime: Preferable if you have fewer deductions and seek simpler compliance with lower tax rates.

Informing Your Employer

You must inform your employer about your preferred tax regime at the beginning of the financial year. If no choice is communicated, the new regime will be assumed as default.

Key Takeaways:

The new tax regime is the default; you must choose the old regime if you wish to avail deductions.

Evaluate both regimes based on your financial situation and available deductions.

File your ITR by July 31 to avoid penalties and ensure compliance with tax laws.

For detailed advice tailored to your specific financial circumstances, consulting with a tax professional is recommended.