The Indian Government introduced two income tax regimes in the Union Budget 2020-21 to simplify the tax structure for taxpayers.
The new tax regimes have different tax slabs and tax rates than the existing regime.
Taxpayers can choose the regime that suits them best. In this blog, we will guide you on how to decide which income tax regime is good for you in FY 2023-24.
Understanding the Old and New Tax Regimes
Understanding the primary distinctions between the existing and new tax regimes is essential to helping you decide which income tax regime is best for you in FY 2023–24.
Four tax slabs with rates ranging from 0 to 30 were part of the old tax structure. With rates ranging from 0 to 30, the former tax system comprised four tax slabs.
The Income Tax Act has been revised to introduce a fresh tax system featuring seven distinct tax brackets, each with a specific income threshold and corresponding tax rate.
Unlike the previous tax system, the new system prohibits taxpayers from claiming any deductions or exemptions which were previously accessible.
Consequently, taxpayers must assess the benefits and drawbacks of availing exemptions and deductions against lower tax rates to determine which tax system would be more advantageous for their financial circumstances.
To choose the regime that results in a reduced tax burden, it's compulsory to estimate your tax liability under both regimes each time.
Especia's team of tax specialists can offer individualised tax advice and guidance catered to your specific circumstances if you require assistance understanding the subtle differences between the old and new tax regimes.
Assess Your Tax Liability in Both Regimes
Assessing your tax due under both income tax regimes is crucial in determining which is best for you in FY 2023–24.
This can be accomplished by consulting a tax professional or using an internet tax calculator.
It would be advantageous for you to continue utilising the old tax system if you frequently claimed exemptions and deductions under it.
If an individual's tax liability is minimal and they do not claim any deductions or exemptions, the new tax system may be more advantageous.
Conversely, if someone avails of the deductions and exemptions under the previous tax regime and possesses substantial savings and investments, their tax liability may be lower.
However, individuals with fewer assets and savings might benefit more from the lower tax rates available under the new tax structure.
Individuals with a gross yearly income greater than Rs. 15 lakhs can opt between the old and new tax regimes, but it is recommended to choose the old tax regime if their income exceeds the specified limit.
It is essential to assess the tax liabilities under both systems to determine the optimal tax regime that aligns with an individual's financial situation.
Especia's team of tax specialists can offer individualised information and support if you need assistance with determining your tax liability or which regime to choose.
Analyse Your Income Sources and Investments
You must precisely examine your income sources and investments in order to decide which income tax regime is best for you in FY 2023–24.
Having multiple income sources like rental income, interest income, and salary can make the previous tax system more beneficial for an individual.
This is so that you can deduct the costs associated with producing rental and interest profit under the previous tax system.
Also, the previous tax system might be more profitable if you invest under certain sections of the Income Tax Act, such as Section 80C or Section 80D.
In the old slab rate, taxpayers had the option to deduct specific investments, similar to public savings certificates, employee provident funds, public provident funds, and health and life insurance premiums.
On the other hand, the new tax system does not allow taxpayers to claim any deductions or exemptions under numerous sections of the Income Tax Act.
Hence, people need to weigh the benefits of using deductions and exemptions available in the old tax system versus the lower tax rates offered by the new tax system to determine the most suitable tax regime for their specific fiscal circumstances.
Thus, in order to choose which income tax system is best for them in FY 2023 – 24, taxpayers must precisely consider their income sources and investment portfolios.
The team of duty specialists at Especia can offer individualised guidance and support if you need assistance analysing your sources of income and assets so that you can make an informed choice.
Looking at the Long-term Impact
It's necessary to suppose about the long-term effects of your choice of the tax regime in addition to the immediate ones.
Your choice of tax regime may be considerably influenced by your retirement goals, potential sources of income, and investment objectives, among other effects.
If you have fewer deductions and want to retire soon, then the new slab rate would be a better option.
This is because the new tax system has lower tax rates for some income brackets, which might eventually help you save money.
Also, unlike the previous tax system, you will not have to worry about claiming exemptions and deductions.
For some, the old slab rate might be more profitable if they earn a high income.
This is due to the fact that under the previous tax system, you were suitable to deduct and exempt a variety of means, including payments made to the employee and public provident funds, public savings certificates, and the premiums for life and health insurance.
These exclusions and deductions can mainly lower your tax obligation and eventually affect your financial savings.
Thus, assessing your long-term financial goals and tax planning strategies is critical before deciding on a tax regime.
You can make an informed choice about which tax structure is applicable to you in FY 2023 – 24 by talking with a financial advisor.
To help you in achieving your long-term fiscal objectives, Especia provides individualised financial and tax planning services.
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Conclusion
Choosing the best income tax structure for FY 2023- 24 can be delicate since it requires thoroughly examining your income sources, means, and deductions.
Still, calculating your tax liability under both the old and new tax regimes, considering your long-term fiscal objectives, and consulting a professional can help you make a more informed decision.
Taxpayers are now allowed to claim deductions and exemptions under different sections of the Income Tax Act with the new tax system, unlike the old tax system that allowed for multiple provisions.
Choosing between these tax regimes could depend on an individual's financial situation.
It's pivotal to estimate the long-term goods of your tax regime choice as well as aspects like your retirement plans, potential future income sources, and investment objects.
Evaluating and selecting the appropriate tax regime can prove advantageous in the short as well as long run, ensuring maximum benefits for an individual's financial situation.
Especia provides customised financial and tax planning services to assist individuals in selecting the most suitable tax structure that aligns with their individual financial circumstances.
To create a comprehensive tax planning strategy that supports your long-term financial goals, you may get help from our team of experts by negotiating the tax code's complexity.
Therefore, seek our advice before selecting the tax system that will work the best for you in FY 2023–2024.
FAQ’s related to Deciding Between Income Tax Regimes
1. Can I switch between tax regimes during the financial year?
Yes, you can switch between tax regimes during the financial year. However, you will have to forgo any deductions or exemptions claimed under the old tax regime.
2. Am I allowed to take deductions under the new tax regime?
No, deductions under the new tax rate system are not allowed, but comparatively, you'll get lower tax rates.
3. Which tax regime is better for senior citizens?
Senior citizens without significant deductions or exemptions may find the new tax regime more beneficial. This is because the new tax regime has lower tax rates for certain income slabs. However, senior citizens with significant deductions or exemptions may find the old tax regime more beneficial.
4. Can I choose a different tax regime every year?
Individuals have the option to opt for a different tax regime each financial year. Nevertheless, they need to estimate their tax obligation under both regimes and decide on the one that provides the most benefits. Still, they must assess their tax obligations under both regimes and opt for the one that offers the maximum benefits.
Especia's team of tax experts is here to help you. Suppose you want assistance in understanding and choosing the right tax regime. Reach out to us for personalised tax advice and guidance.
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