Old vs new income tax regime for investors: Know which one suits you best

The new financial year has begun and many smart investors are looking to plan their taxes right from the word go. When it comes to income tax return filing, the first thing which comes to mind is whether to opt for an old income tax regime or go for the new one, especially after the government has sweetened it in Budget 2023 by giving a few incentives. Whether it is an investor or a trader, the choice of regime will depend upon the income slab one falls into and how best one can avail the exemption benefits in the old regime.

ETMarkets spoke to experts to find the right answers.

Old Vs New Debate
“The new income tax regime is the default regime now, but taxpayers can opt for the old regime as well. From April 1, 2023, anyone earning up to Rs 7.5 lakh (With the standard deduction of Rs 50,000) does not need to pay any income tax,” Adhil Shetty, Chief Executive Officer (CEO) of Bankbazaar.com said.

“If your income is Rs 5 lakh or less after deductions, it is a good idea to choose the old regime,” said Shetty, adding that it will be prudent to choose the new regime if one is earning above that and the income is up to Rs 7.5 lakh.

“Those with income up to Rs 7.5 lakh will benefit from being in the new regime as they will not have to pay any tax,” another expert Archit Gupta Founder and CEO at Clear (erstwhile cleartax) said.

Echoing similar sentiments, Santosh Navlani, COO, ET Money, said the government has made changes to the new tax regime to enhance its appeal, and it’s likely that many people will find it more beneficial.

“In case your income is between Rs 7.5 lakh and Rs 14.17 lakh, and you can claim a 30% or higher deduction, you must go for the old regime. If your income is greater than Rs 14.17 lakh or up to Rs 5.0425 crore and you can claim a deduction greater than Rs 4.25 lakh, you must go for the old regime,” Shetty further said.“Depending on your income, you can take a call about what is better for you. For example, if you earn greater than Rs 5.0425 crore and after deductions if the old regime is better you must opt for that otherwise simply go with the new regime,” he added.

“Those in the middle income group, who can work their CTC in a manner that exhausts all available exemptions and benefits, whether in the form of allowances they claim or reimbursements they are eligible for will benefit from being in the old regime. They have to be diligent with claiming these benefits and exhausting whatever deductions are available via chapter VIA, i.e. the section 80 deductions,” Gupta of Clear said.

Meanwhile, Gupta was in favour of the new tax regime for the super rich. “The super rich, with income of Rs 5 crore will benefit from being in the new regime, due to cut in cess. Highest surcharge rate on income exceeding Rs 5 crore has been reduced from 37% to 25% in the new tax regime. Therefore high income earners will also benefit from being in the new regime, the benefit from claiming deductions will be lesser than the lower tax outgo due to lower tax rates in the new regime,” the CEO said.

“The old regime also has a number of deductions and exemptions, so I would suggest that everyone should run their own calculations. If you have a home loan, the deduction on the interest component, which is up to Rs 2 lakh in a financial year, can tilt the balance in favour of the old regime. So, one will have to assess one’s case and then come to a conclusion,” Navlani, of ET Money said.

Picking a tax regime is easier if you know your total deductions and exemptions. You can add all deductions and exemptions you availed of last year as a reference, the ET Money COO further said. He gives a comparison of the tax that one can save depending upon the regime one wants to pick.

Source: Clear

“However, it’s essential to know that once you choose the new tax regime, you cannot switch back to the old regime for that financial year,” Shetty of Bankbazaar.com said.

”I would also like to add that if you do opt for the new regime, you will need to be more diligent with your investments and insurance, as there would be no tax-saving push. If you don’t make adequate investments after opting for the new regime, that can even compromise your financial goals,” Navlani said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)