Union Minister Nirmala Sitharaman introduced the new tax regime as voluntary compliance through the budget for the current fiscal year. Taxpayers, particularly employees, can select the old or new government according to their preferences. According to the procedure, employees should notify their employer of the tax regime they intend to use at the start of each fiscal year.
Before making a choice when filing an ITR, it is essential to thoroughly weigh the advantages and disadvantages of the old and new tax systems. However, even after measuring every parameter, you can choose another action. Here is everything you need to know in that scenario:
What is a Tax Regime?
A tax regime is a method used to calculate a person's income tax obligation after considering all the deductions and tax breaks offered by that specific regime.
What is an Old Tax Regime?
The tax on income determined using the previous tax slabs is also the "old/existing tax system." Under this system, different income levels come under various tax slabs. These levels consider all Chapter VIA deductions (such as deductions under Section 80C, 80D, etc.) and other tax benefits like HRA, LTA, and numerous others permitted by the Income Tax Act of 1961. You can calculate income tax using the old tax regime as per the following grid:
|Upto Rs. 2.5 lakhs||NIL tax|
|Rs 2.5 lakhs to 5 lakhs||5%|
|Rs. 5 lakhs to 10 lakhs||20%|
|Above Rs. 10 lakhs||30%|
What is the New Tax Regime?
Lower tax rates come under the new tax system, but many tax breaks and perks available under the previous system are no longer available.
According to the new tax law, there is no tax on income up to Rs. 2.5 lakh per year. Over there:
|Upto Rs. 2.5 lakhs||NIL tax|
|Rs. 2.5 lakhs to Rs. 5 lakhs per annum||5%|
|Rs. 5 lakhs to Rs. 7.5 lakhs per annum||10%|
|Rs. 7.5 lakhs to Rs. 10 lakhs per annum||15%|
|Rs. 10 lakhs to Rs. 12.5 lakhs per annum||20%|
|Rs. 12.5 lakhs to Rs. 15 lakhs per annum||25%|
|Above Rs. 15 lakhs per annum||30%|
Utilization of the New Tax System:
The new tax system is in effect from AY 2021–2022 or FY 2020–21.
Individuals and HUF can choose between the "new tax system" and the "old tax regime" by submitting Form 10IE.
How to choose the proper tax regime?
By inputting your information by the new and old tax regimes, you can quickly calculate income tax as an individual using any of the online tax calculators that are accessible.
Anyone may select which routine would be ideal for them with the aid of these calculators, making the process simpler. You may calculate how much tax you must pay under both regimes once you have entered all the necessary information.
How to switch between the New and Old Regimes?
- A. Business Owners:
- People with company income will only be able to choose between the two regimes annually. They will only be able to select a new government after returning to the previous one. Once they decide on a new tax system, they only have one chance in their entire lives to change back to the previous design.
- People with business income will likely need to submit Form 10 IE twice in their lifetimes—once to select the new tax system and again to revert to the previous one.
- B. Salaried Employees:
- The new and old tax regimes are available to everybody with a salary and no other source of income.
- For those who choose the new tax system, Form 10IE won't need to be filed annually by the salaried person. Instead, they need only select ITR 1 or 2's option 115 BAC.
According to the law, employees must select between the old and new tax regimes and tell their employers of their selections; however, if their choice is still determined, the employee may modify it at the time of ITR filing.