A slab system establishes different tax rates for different income groups. It suggests that a taxpayer’s taxation rate will rise in proportion to his or her income. The old and new tax regimes are thoroughly explained in this article.
The assessee can utilise the deductions, exemptions, and allowances available under the previous taxation framework in order to properly prepare their taxes and reduce their tax burden. The current tax system is complicated. Regardless of the high taxation rates, there are a number of ways to reduce your tax liability. The government has given Indian taxpayers access to 70 exemptions and deductions that can help them lower the volume of taxable income and pay considerably less amount of tax.
The old income taxation system gradually made people prone to saving. It promotes saving for future events such as marriage, school, home purchases, medical bills, and so on.
Just like everything else, the old taxation regime had some cons accompanying the many benefits. The existing level of consumption is a result of committed investment sums. Liquidity is harmed by the former tax system’s investment lock-in term. Maintaining records of claimed deductions is troublesome. In this system, there are funds that have the power to reduce the amount of taxation. Additionally, it isn’t advantageous to the ones paying the taxes, who have no or few tax-deductible transactions.
New Tax Regime & its pros and cons
Six taxation slabs, each with a reduced rate for earnings ranging from Rs. 15 lakhs, make up the new tax system. The various income slabs and tax rates prevent the availability of multiple exemptions and deductions. The new tax system has advantages and disadvantages. The new tax plan is different than the previous one in two ways:
- Under the new structure, there are more tax bands with reduced rates starting around the Rs. 15 lakh tiers.
- All of the tax exemptions that taxpayers used under the previous regime won’t be available under the new one.
The new tax system has advantages and disadvantages too.
The following are some advantages of said new tax system:-
- Under the new programme taxpayers are free to invest their funds with no restrictions in the new tax system.
- The new tax system is still in progress and taxpayers can choose between the old and the new one depending on their needs and preferences. The government has not imposed any fines for not transitioning to the new tax regime.
- The taxpayer, which is in this case, you, would be put in the taxation bracket that closely matches your customised yearly income.
The lack of exemptions throughout the new taxation system means that the estimated tax income will increase compared to the amount you received under the old tax system.
There are benefits and drawbacks to both the revised as well as old income tax slabs. The new tax structure is designed with new investors and people just starting their careers in mind as their income is still in its infancy. As a result, entering the earnings through both regimes to calculate the real tax due is the only method to establish which tax system is preferable for you.