Income Tax: The new tax system was introduced in 2020, in which tax rates were kept low but many exemptions and deductions were abolished. Therefore, the question arises that in which of the old and new tax system is there more benefit.
New Delhi. The new tax regime (NTR) was introduced in the Union Budget 2020 under section 115BAC of the Income Tax Act, 1961. In this, taxpayers are provided with the option of paying income tax at lower rates. However, for this, some exemptions and deductions of the old tax system have to be given up. NTR was introduced to simplify the tax return filing process and reduce the documentation required for claiming exemption/deduction.
Under NTR, salaried individuals are required to forgo exemptions such as house rent allowance, leave travel allowance and deduction for specified investment/expenditure. While you can claim these exemptions under the existing/old tax regime (OTR). Even though NTR provides for lower tax rates with different income slabs, OTR is more popular especially among salaried taxpayers. Let us see why this is so.
Why is OTR preferred?
Income above Rs 15,00,000 is taxed at 30% under both OTR and NTR. Contributions to its long-term investments and retirement savings plans are not exempt in the new tax regime. These investments generally give better returns. This leads to savings as well as profits for the investors. There is no tax exemption under the new system on paying home loan installments. The facility of exemption in lieu of house rent allowance, exemption on LTA and standard deduction etc. is also not available.
For whom it is beneficial
NTR can be beneficial for those taxpayers who have not invested much or have low income. It can also be beneficial for those who want a hassle-free tax process away from the hassle of claiming exemptions/deductions. However, the point remains that NTR is a comparatively high tax regime. Experts believe that the time has come to implement a more simple and tax-efficient single tax system. It is expected that the flaws in the budget or the new tax system will be removed or a single tax system will be introduced.
