New tax regime Vs old tax regime: Which one you should opt for?

I sold some TCS, Mindtree shares in the last financial year, which were accumulated in the last four years. Do I need to pay income tax on the gains while filing the tax returns? - Veeren, Hyderabad

It would have been easier had you mentioned the specific dates and amount of profit or gains realized. The key lies in these numbers. Well, to put it in a nutshell, there is no income tax (long term capital gains tax) if your gains are up to Rs one lakh in a financial year. The same applies to gains from equity-oriented mutual funds. If gains are less than or up to Rs one lakh, then it is exempted from income tax, and it will not be included in the total income of a taxpayer.

You will, however, need to show in Income Tax Returns (ITR) and pay Long Term Capital Gains (LTCG) tax if your profits or gains from equity shares or equity mutual funds exceeds Rs one lakh in a financial year. Under the prevailing income tax laws, the LTCG on equities is taxed at 10 per cent for the gains exceeding Rs one lakh. The LTCG on equity shares were exempt from taxation until the financial year - 2017-18 and came with effect from the financial year 2018-19. Suggest you take professional help (from a practicing chartered accountant) in filing the income tax returns.

I did not opt for the new tax regime and submitted the tax declaration to my employer. Can I still change to the new tax regime in this financial year to avoid filing tax proofs? - K Rajesh, Rajahmundry

The Finance Ministry introduced a New Tax Regime (NTR) with effect from FY21. The choice to choose one of the tax regimes lies with an individual taxpayer. One can either shift to the NTR or can continue with the Old Tax Regime (OTR). One can interchange between NTR and OTR as per the taxpayer's convenience and incidence of tax liability every year. Salaried and pensioners without business income can enjoy the benefit and be allowed to do an about-face every year.

Taxpayers with business income under the head 'profit and gains of business or profession' do not have the option to flip-flop. However, in the case of taxpayers with business income, those who opted for the NTR will get only one chance in a lifetime to switch over to the OTR. Income from consulting and freelancing and any business activities will be considered as Business Income. Taxpayers can utilize the option of switching back to NTR from OTR or from OTR to NTR if their business income ceases to exist in the future years.

Under the NTR, taxpayers need not invest in tax-saving investments nor submit proof of receipts to employers. Those who choose the NTR will have to forego various deductions and exemptions available under the OTR. However, they will be entitled to lower tax rates. Many taxpayers can take advantage of the NTR if beneficial for them. Hence, those taxpayers opting for the NTR need not submit receipts or invest in tax-saving instruments like PPF, NPS, life insurance, health insurance, Five-year tax-saving fixed deposits, ELSS mutual funds under various sections. Those who want to be loyal to the OTR can stick to it and continue to enjoy various deductions and exemptions available under multiple IT Act sections. Consequently, the OTR candidates will not qualify for the lower tax rates available under the NTR. One must compare the tax liability in the new tax regime before sticking to the existing or OTR and making investments to avail tax breaks. Every taxpayer has to calculate the Income, cash outflow for tax-saving, and tax liability under both options or tax regimes and compare. Choose wisely. Of course, you still can take a 'U-turn' after choosing and declaring your tax regime to your employer or income tax department.

(The author is a SEBI licensed Research Analyst. The alumnus of the Indian Institute of Foreign Trade (IIFT), he had held leadership roles at National Geographic, Reliance Radio Television Luxembourg, STAR TV, etc)