When deciding between India's old and new tax regimes, individuals must consider their financial circumstances, income sources, and investment behaviors. It is worth noting that the new income tax regime has been made the default option starting from the new Financial Year, meaning those who prefer the old regime must actively opt for it during the return filing process. Taxpayers without Business Income have the flexibility to switch between regimes annually.
Under the old tax regime, individuals can claim deductions for a variety of expenses such as investments in instruments like PPF, ELSS, and NPS under Section 80C, as well as medical expenses under Section 80D, among others. These deductions can lower taxable income, thereby reducing the overall tax liability. However, this regime requires meticulous record-keeping and may result in individuals paying more tax if they fall into higher tax brackets even after availing deductions.
Conversely, the new tax regime, introduced in 2020, offers lower tax slabs which can lead to reduced tax liability, especially for individuals in lower income brackets. This regime simplifies the tax filing process by eliminating the need to claim deductions for most expenses, making it less burdensome in terms of record-keeping. However, the downside is that the new regime offers minimal deductions, potentially resulting in higher tax outgo for those who previously benefitted from numerous deductions under the old regime.