Maximising Your Savings: Old vs. New Tax Regimes

With the approaching financial year starting April 1st, you might be mulling over whether to stick with the old tax rules or switch to the new ones. It's a common dilemma: which tax regime—old or new—will benefit you more? And how can you minimise your tax bill if you go for the new system?

To figure this out, you need to understand the key differences between the old and new tax systems for the fiscal year 2024-25 (assessment year 2025-26). Let's break it down in simpler terms:

Comparison of Old vs New Tax Regime

In the old regime, you have access to over 70 exemptions and deductions, including HRA and LTA, which can help reduce your tax burden.

So, which regime is better?

Deciding between the old and new tax systems depends on factors like your income and the deductions/exemptions you can claim under the old system. Let's take an example:

Meet Rohit and Raj, both IT professionals. Rohit earns 10 lakhs annually, while Raj earns 20 lakhs. They both have EPF deductions and invest in ELSS, besides having individual health insurance. Now, let's see which tax regime suits each of them better.

As you can see from our example, the best choice varies for each person. There's no one-size-fits-all solution. Taxpayers should carefully evaluate their tax liabilities under both regimes before making a decision.

In general, here’s a checklist to help you quickly decide which regime to opt for:

• If deductions exceed ₹3.75 lakhs, opt for the old tax regime for maximum benefit.
• Total deductions ranging from ₹1.5 lakhs to ₹3.75 lakhs necessitate consideration of income levels to determine the preferable regime.
• When deductions fall below ₹1.5 lakhs, the new tax regime tends to be more advantageous.

Check which regime to opt for in FY 2024-25 here :https://cleartax.in/paytax/TaxCalculator 

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